Okomu Oil Q2 2021 Results Review: In Line for a Record Performance in 2021


Wednesday, August 11, 2021 / 12:25 PM / by FBNQuest Research / Header Image Credit: Nairametrics


Neutral rating maintained; increased price target by 32% to NGN124

Okomu delivered strong Q2 '21 results. Earnings were up 116% y/y to NGN4.3bn, beating our forecast by 9%. The bottom-line was spurred by sales growth of around 69% y/y. Following discussions with management, we conclude that price increases implemented during the period were primarily responsible for the strong sales. Higher CPO prices and rubber yields also helped, but to a lesser extent. In Q2, average CPO and rubber prices were up 66% y/y and 31% y/y to N646,000/ton and N605,370/ton respectively. The rally in global commodity prices and the devaluation of the naira remained supportive. We have adjusted our earnings forecasts over the 2021-22E period by 10%, mainly to reflect higher pricing.

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From an operational perspective, Okomu continues to ramp up CPO production from Extension II. Management guides to end-Q3 for the commissioning of the first 30ton/hr oil mill at Extension II. The second 30ton/hr mill will be commissioned by Q1 '22. On costs, the new 5MW turbine will be operational by the end of August, after several delays caused by the COVID-19 pandemic. The power plant will be powered by steam produced from incinerating empty fruiting bunches and fibre. Although this is expected to lower power costs by c.15% annually, we have raised our opex estimate for '21E by 5% to reflect additional administrative expenses in Extension II.


Our price target of NGN124.0 is up 32% because, in addition to our upward earnings review, we have rolled forward our valuation to 2022. At current levels, our price target implies a potential upside of +13%. We project a dividend of NGN7.00/share for '21f, which works out to a yield of around 7.3%. Although management did not provide any guidance on dividends for '21, we expect that strong y/y earnings growth and cash generation will lead to a similar dividend level for the current year. Year-to-date, Okomu shares are up +11.5% vs. the ASI's -2.7% decline. We retain our Neutral rating on the stock.

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Q2 '21 results up significantly, backed by unit volume growth and pricing, similar to Q1 '21

In Q2 2'1, PBT and PAT improved by 121% y/y and 116% y/y, driven by strong growth sales of 69% y/y to NGN11.1bn. Topline growth, boosted by price increases and production from newly matured acreages, more than offset a 31% y/y rise in opex. On a segmental basis, palm oil sales were up 65% y/y to NGN10.0bn, while rubber exports grew by 125% y/y to NGN1.1bn. For rubber, elevated prices on international markets and the naira devaluation provided support. Compared with our estimates, sales and PAT beat by 14% and 9% respectively.

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