Friday, November 06, 2020 /10:34 AM / By FBNQuest Research / Header Image Credit: Invest Advocate
Palm oil sales declines y/y on seasonal trends
(Okomu) Q3 2020 earnings fell -37% y/y to N922m. The drivers behind this were a
sales decline of -27% y/y to N5.1bn and gross margin contraction of around
-1,362bps y/y to 78.9%. Palm oil sales were down -29% y/y mainly due to base
effects. For context, sales in the corresponding period of 2019 were boosted by
the federal government's closure of national borders in 2019.
As such, Q3 sales which were in line with our forecast reflect
seasonal trends during the lean marketing season. According to management, palm
oil prices are presently around N490,000/tonnes. The combined impact of the fx
devaluation and border closures continue to place upward pressure on palm oil
prices. Given this scenario, we have raised our sales forecast for 2020E by
Following our discussion with management, we have raised our opex
forecast by around 8% to reflect additional expenses from the now maturing
Extension II plantation. We expect these costs will more than offset a
moderation of other operational costs across the business. Additionally, in our
view, potential cost saving benefits from the installation of a 5MW turbine at
the rubber factory will now be deferred beyond Q1 2021 due to covid-related
The commissioning of the production plant at the Extension II
plantation will be around end-H1 2021. Overall, our earnings outlook over the
2020-21E period is down by 2%. Our price target of N74.4 is unchanged and
implies a potential downside of -7.0% from current levels. As such, we retain
our Neutral rating on the stock. Okomu shares are trading on a 2020E P/E
multiple of 13.1x for EPS growth of c.49% over the next two years.
Q2 2020 earnings boosted by
strong sales and GM expansion
Okomu's Q3 2020 earnings were weaker y/y and q/q. PAT of N992m
declined by -37% y/y and -50% q/q respectively. The relatively weaker
performance was driven by softer sales (down -27% y/y and -22% q/q to N5.1bn)
and a -1,362bp y/y contraction in gross margin which more than offset a
double-digit decline in operating expenses. For sales, a -29% y/y decline in
palm oil sales to N4.2bn surprised negatively.
Predictably, rubber sales fell -16% y/y to N866m in Q3. Compared
with our estimates, while sales were ahead of our forecast by 3%, PBT missed by
around 33%. The variance was primarily driven by the weaker-than-expected gross
margin of 79% vs. our 88% estimate.
1. Okomu Oil
Palm Company Plc Q3 2020 Unaudited Results - Lower Domestic Sales Weaken Q3
Declares N5bn PAT in Q3 2020 Results, (SP:N80.00k)
Notifies of Dealing in 0.004m Volume of Shares By SOCFINAF S. A
Notifies of Dealing in 0.3m Volume of Shares By SOCFINAF S. A
Notifies of Dealing in 0.2m Volume of Shares By SOCFINAF S.A
Okomu Oil Neutral Rating
Maintained in Q2 2020...
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Notifies of Resolutions Passed At Its 2020 AGM...
10. OKOMUOIL To
Hold 40th AGM on May 28 2020 Lists Proxies...
11. Okomu Oil Q4
2019 and Q1 2020 Results Review Strong Start to the Year Despite H...
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Declares N5.1bn PAT in 2019 Audited Results SP N55.05k ...
Appoints the Law Firm of P.C. Obi and Co As Company Secretary...
Notifies of Board Meeting Resolutions
Notifies of Board Meeting and Closed Period
(23) - Agriculture Sector - OKOMUOIL Tops As ELLAHLAKES and FTNCOCOA Record