Okomu Oil Q4 2016 Results Review - Healthy Fundamentals; Outlook Still Positive


Tuesday, April 18, 2017/12:07 PM/FBNQuest Research

ward revisions to estimates and price target  

Okomu Oil’s (Okomu) Q4 2016 results came in stronger than we expected. The variance versus our estimates was mainly to due to a positive surprise in sales.  

For the coming year, Okomu management has guided to palm oil output of around 46,000te for palm oil, implying volume growth of around 25% y/y.  

On the back of the stronger-than-expected earnings and the company’s guidance, we have increased our earnings estimates by 39% on average over the 2017-18E period and our price target by 28% to N57.0.  

Okomu shares are trading on a 2017E P/E of 8.1x for average EPS growth of 14.8% y/y in 2018E. The shares have gained 30.7% this year, significantly outperforming the broad index by 35.8%.  

Despite the rally, we still see upside potential of 8.6% from current levels. We have retained our Neutral rating on the stock. 

Palm oil remains in the driving seat 

Okomu’s Q4 numbers were boosted by its palm oil business which recorded sales growth of 75% y/y versus 69% y/y growth for the rubber segment.  

The palm oil business now accounts for 85% of total sales compared with 60% levels in 2011. We attribute the palm oil sales growth to both volume and pricing.  

Owing to the CBN’s restriction of foreign exchange to palm oil importers and the devaluation of the currency, Okomu has been able to benefit from reduced competition and favorable pricing.  

Although the net finance cost line surprised negatively in Q4 2016 (Okomu booked a foreign exchange loss of N1.0bn due to foreign loans and creditors), we do not believe the company’s exposure to foreign credit will deter it from delivering strong earnings in the near term.

For FY 2017E, we see sales and PBT growing by 26% y/y and 40% y/y respectively.

Q4 2016 PBT and PAT up markedly y/y 

Okomu’s Q4 2016 results showed sales growth of 74% y/y to N3.5bn. PBT and PAT advanced by wider margins of 132% y/y and 62% y/y to N797m and N735m respectively.  

Although finance costs grew by over 1,000% y/y and operating expense reversals were lower y/y, these were not strong enough to offset the strong y/y sales growth and a 4,315bp y/y gross margin expansion, leading to the 132% y/y increase in PBT.  

Due to a 227bp y/y expansion in the tax rate, the PAT growth was softer. On a sequential basis, sales were up modestly q/q. However, PBT declined by -34% q/q.



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