Monday, May 17, 2021 / 09:58 AM / by FBNQuest Research
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Okomu's earnings in Q1 '21 were up 160% y/y to NGN5.3bn. Profitability was helped by both strong palm oil sales growth of 78% y/y to NGN11.bn and rubber sales (up +94% y/y to NGN1.2bn). While unit volumes were up by double-digits y/y for both products, strong price increases (52% y/y to N578k/tonne for palm oil and 43% y/y to NGN555k/tonne for rubber) were the primary drivers behind the topline improvement. We expect pricing to remain firm as the re-opening of the global economy is supportive for commodities.
We forecast sales of NGN33.2bn for '21f, up 42% y/y. Our projection is driven by a sales growth of 39% y/y for palm oil. According to management, commissioning of a 5MW turbine - which will be fueled by empty fruiting bunches and fibre - is expected this quarter. In our view, this project, which was delayed by movement restrictions last year, has significant upside implications for the cogs line. Further down the P&L, we forecast opex growth of c.30% y/y, resulting from increased activities at Extension II. We expect capex, mostly focused on Extension II, to come in flattish y/y following management's guidance. Overall, our EPS outlook over the next two years is up 15% on average. However, our price target of NGN91.2 remains unchanged because we have raised our risk-free rate assumption by +250bps to 12.5% to reflect the higher interest rate environment.
At current levels, our price target implies a potential downside of -5.5%. Okomu's '20 proposed dividend of NGN7.00/share surprised positively and 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 this current year. Year-to-date, Okomu shares are up +6.0% vs. the ASI's -2.0% decline. We retain our Neutral rating on the stock.
Q1 '21 results up significantly; backed by unit volume growth and pricing