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Okomu Oil Q1 2017 Results Review - Upward Revisions to Consensus Estimates Expected

Proshare

Friday, April 28, 2017/5:47 PM/FBNQuest Research

Event: Okomu Oil reports Q1 2017 results
Implications
: Upward revisions to consensus estimates expected
Positives
: Sales, PBT and PAT advanced by 77% y/y, 108% y/y and 92% y/y respectively
Negatives
: Gross margin contracted by -551bps y/y to 78.6%


This afternoon, Okomu Oil (Okomu) reported its Q1 2017 results which showed that sales grew by 77% y/y to N5.9bn. PBT grew by 108% y/y to N3.4bn while PAT of N3.1bn advanced by 92% y/y.


Although gross margin contracted by -551bps y/y to 78.6%and operating expenses increased by 11% y/y, these negatives were more than offset by the strong sales growth, and to a lesser extent, a 94% y/y decline in net finance costs leading to the strong bottom line. PAT growth was softer due to an effective tax rate of 9.6% compared with 2.4% in the corresponding quarter of 2016.

On a sequential basis, sales were up 71% q/q. Despite a significant increase in operating expenses (-N1.2bn versus +N379m in the prior quarter), PBT and PAT grew by wider margins of around 320% q/q on average due to the strong sales growth, a +4611bp q/q gross margin expansion and a significant y/y reduction in net finance costs. We attribute the significant q/q gross margin expansion to base effects.

Okomu usually reports weak gross margins in Q4 relative to other quarters – most likely related to accounting adjustments. Compared with our estimates, Q1 sales were ahead by 34% while PBT was significantly ahead.

A breakdown of the revenue figure shows that palm oil sales of N5.1bn grew by 74% y/y during the quarter while rubber sales of N773m advanced by 112% y/y. The sales figure reported for the rubber business represents 13% (vs. 40% in 2011) of the company’s topline. We attribute the strong sales growth for the palm oil business to both pricing and volumes.

Okomu management has revealed that the company is implementing an aggressive expansion plan, in 2016, the total area for palm oil production increased by 36% y/y to 14,463ha. In addition, we continue to believe that local palm oil producers have been benefiting from policies by the CBN through favorable pricing. For rubber, pricing may have helped the business to grow. The company indicated that average rubber prices increased by 22% y/y in 2016.

Okomu’s sales and PBT are tracking significantly ahead of consensus FY 2017E estimates of N18.5bn and N8.7bn respectively. As such, we expect upward revisions to consensus estimates.

Year to date, Okomu shares have gained 17% and have outperformed the NSE ASI by 21%. We rate the stock Neutral. Our estimates are under review.
 
Okomu Oil’s Q1 2017 results: actual vs. FBNQuest Research estimates (N millions)

                                              Q1 2017

 

 

Actual

Y/y

Q/q

FBNQuest est.

Act. vs FBNQuest est (%)

Sales

5,896

77.3%

70.8%

4,413

33.6%

Cost of sales

-1,264

138.6%

-45.8%

-544

132.2%

Gross profit

4,632

65.7%

313.3%

3,869

19.7%

Gross margin

78.6%

-551bps

4611bps

87.7%

-910bps

Operating expenses

-1,236

11.0%

n/a

-1,677

-26.3%

Other operating income

0

n/a

n/a

20

n/a

Operating profit

3,397

101.9%

109.8%

2,212

53.6%

Net int. and similar chgs

-3

-94.2%

-99.7%

-90

-96.9%

PBT

3,394

107.6%

325.6%

2,122

60.0%

-PBT margin

57.6%

841bps

3447bps

48.1%

948bps

Tax

-324

736.2%

417%

-530

-38.8%

Tax rate

9.6%

719bps

168bps

25%

-61.8%

PAT

3,070

92.3%

317.8%

         1,591

92.9%

-PAT margin

52.1%

407bps

3078bps

36%

1600bps

             

Source: NSE, FBNQuest Research estimates

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4.     OKOMUOIL Declares N4.96bn PAT in 2016 Audited Results, Proposes N1.50k Dividend (SP:N52.51k)

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6.     Okomu Oil Palm Plc Optimistic Near Term Neutral Rating Maintained

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