Wednesday, July 27, 2016 3:27PM/FBNQuest Research
Event: Okomu Oil reports Q2 2016 results
Implications: Upward revisions to consensus estimates likely
Positives: Sales, PBT and PAT advanced 64% y/y, 139% y/y and 147% y/y respectively
Negatives: Total costs (cogs+opex) grew 24% y/y
This morning, Okomu Oil (Okomu) reported Q2 2016 results which showed that sales of N4.2bn were up 64% y/y while PBT and PAT grew by wider margins of 139% y/y and 147% y/y respectively to N2.3bn and N2.0bn. The strong sales growth was mainly responsible for the growth in earnings.
A 31% y/y reduction in net finance costs also helped, despite a 24% y/y increase in total costs (cost of sales + operating expenses). On a sequential basis, sales advanced by 27% q/q while PBT and PAT grew by 39% q/q and 25% q/q respectively. The strong q/q growth can be partially attributed to seasonality as Q2 is one of Okomu’s strongest quarters.
H1 sales of N7.5bn grew by 51% y/y, while PBT and PAT grew by 83% y/y and 95% y/y respectively to N3.9bn and N3.6bn. Although total costs grew by 33% y/y, this was not strong enough to offset a -40% y/y decline in net finance charges, leading to the PBT and PAT growth rates.
Q2 2016 sales were mainly boosted by palm oil sales which grew by 80% y/y to N3.8bn. Rubber sales on the other hand declined by -10% y/y to N411.7m. The commodity now accounts for just under 10% of the company’s revenue vs 40% in 2011. Although rubber volumes have dropped, unfavorable global prices were mainly responsible for the weak performance of the commodity.
In the past, Okomu management expressed plans to expand their palm oil plantation intensively. We believe the strong growth in palm oil sales was mainly as a result of these expansion plans. We also suspect that weaker competition from imports due to fx devaluation likely helped Okomu gain share and boosted its topline. We will seek management’s confirmation on this.
Compared with our estimates, Q2 sales were ahead by 21%, while PBT and PAT came in ahead by 39% on average. On an annualised basis, and adjusted for seasonality, sales, PBT and PAT are tracking well ahead of consensus FY estimates of N11.1bn, N4.2bn and N3.5bn respectively. As such, we expect consensus to revise their estimates upwards cautiously.
Year to date, Okomu shares have gained +4.0%, outperforming the NSE ASI which has declined -2.4%. On our published estimates, Okomu shares are trading on a 2016E P/E of 6.6x (vs c.30x for the consumer goods names) for average EPS decline of -5.0% y/y over in 2017-18E. The y/y decline is due to base effects.
We rate the stock Neutral. Our estimates are under review.
Okomu Oil’s Q2 2016 results: actual vs. FBNQuest Research estimates (N millions)
Source: NSE, FBNQuest Research estimates