Thursday, April 26, 2018 /10:50 AM / FBNQuest Research
Oil reports Q1 2018 results
Positives: Sales, PBT and PAT posted double-digit growth
Negatives: Opex grew by 116% y/y
This morning, Okomu Oil (Okomu) reported its Q1 2018 results which showed that sales grew by 25% y/y to N7.3bn. However, PBT grew slower, by 17% y/y to N4.0bn. Although operating expenses grew by 116% y/y and weighed on earnings, it was not strong enough to completely offset the y/y sales growth and a 1,251bp y/y gross margin expansion to 91%. Owing to a 319bp y/y expansion in the tax rate to 12.7%, PAT advanced by 13% y/y to N3.5bn.
On a sequential basis, sales and PBT doubled q/q. We attribute the q/q sales growth to seasonality trends – Q1 is usually among the strongest quarters for the palm oil companies. (The breakdown of the revenue figure reveals that palm oil sales grew by 136% q/q in Q1). Although operating expenses advanced by 1,382% q/q, this was completely offset by the q/q sales growth and a 3,864bp q/q gross margin expansion and led to PBT doubling q/q. However, PAT grew slower, by 26% q/q due to a jump in the tax rate.Compared with our estimates, sales were 21% ahead, while PBT and PAT were broadly in line.
During the quarter, palm oil sales of N6.4bn grew by 25% y/y. Rubber sales advanced by 27% y/y to N984m and accounted for 13% of Okomu’s topline. Rubber contribution to sales during the quarter was slightly lower that its contribution to FY 2017 sales because of the faster sales growth of the palm oil business during the quarter (+136% q/q growth for palm oil vs. flat for rubber). Although we attributed the strong q/q sales growth to seasonality trends, we also believe that the company held back on stock produced last year and sold during the quarter.
On an annualised (adjusted) basis, Q1 sales and PBT are tracking ahead of consensus FY estimates by 36% on average. As such, we expect to see upward revisions to consensus’ forecasts.
Year to date, Okomu shares have gained 8.6% and have slightly outperformed the broad index which is up 6.6% this year. We rate the stock Neutral. Our estimates are under review.
Okomu Oil’s Q1 2018 results: actual vs. FBNQuest Capital Research estimates (N millions)
Source: NSE, FBNQuest Capital Research estimates