Stock & Analyst Updates | |
Stock & Analyst Updates | |
4011 VIEWS | |
![]() |
Thursday, May 09, 2019 / 01:06PM /
FBNQuest Research
-21% cut to EPS forecasts over the 2019-20E period
Okomu Oil’s (Okomu) Q1 2019 earnings came in weaker
than expected, down -71% y/y to N1.0bn. Compared with our forecast, earnings
missed by around 50%. Following discussions with management, we expect the
difficult business environment to persist over the next three quarters. In Q1,
field operations slowed down considerably on days leading up to elections,
which weighed on performance during the period.
While this event would not re-occur this year, the continued pressure on consumer wallets, a relatively high global crude palm oil (CPO) inventory due to India’s import tax increases and a flood of smuggled CPO and olein products into the local market continue to be of significant concern and weigh heavily on our revised earnings’ outlook for 2019E.
These factors forced local CPO prices downwards and limited unit volume growth in Q1. Okomu’s Q1 realised average CPO prices of N364,136 (US$1,011) per tonne declined -7% y/y while CPO unit volume sales were flattish y/y. Additionally, rubber sales remain under pressure due to persistent port issues which have constrained rubber exports.
Given these headwinds, we have cut our EPS forecasts over the 2019-20E period by -21%. We do not expect the local glut to ease during the peak season (H1), with the market possibly stabilising in Q4. Our new price target of N64.7 is down by around 18% and implies a potential downside of -7.5% from current levels.
Year-to-date, Okomu shares have shed around -8%, in
line with the NSE ASI’s performance. We retain our Neutral rating on Okomu
shares which are trading on a 2019E P/E multiple of 10.2x for an EPS growth of
37.2% in 2019E.
Q1 2019 PBT declined -68% y/y to N1.3bn
In
Q1, all key line items on the P&L worsened on a y/y basis. While sales were
down -43% y/y, PBT and PAT both fell by -68% y/y and -71% y/y respectively.
Sales for oil palm and rubber declined by –45% y/y and -27% y/y to N3.5bn and
N721m respectively. The more substantial y/y decline on the PBT line was driven
by a gross margin contraction of c.-1000bps y/y to 80%.
This
completely offset any benefits accruing from a double-digit y/y decline in
operating expenses. Sequentially, PBT and PAT both worsened even though sales
grew by 18% q/q. The trend was broadly similar in Q4 2018. Q4 sales of N3.6bn declined -2.8% y/y, while PBT and PAT
both declined by -18% y/y and -63% y/y to N1.6bn and N1.3bn respectively. The
topline decline, the third in a row, was primarily driven by lower rubber sales
which fell by around -11% y/y to N879m.
Related News
1. OKOMUOIL
Declares N1.01bn PAT in Q1 2019 Results (SP:N72.50k)
2. OKOMUOIL
Notifies of the Company’s 39th AGM
3. OKOMUOIL
Declares N8.50bn PAT in 2018 Audited Results, Proposes N3.00k Per share
Dividend
4. Nigeria’s
Oil Palm Sector - An Investment Case for OKOMUOIL and PRESCO
5. Agriculture
Sector – OKOMUOIL Tops on EPS as PRESCO Tops on PE Ratio
6. OKOMUOIL
Declares N7.24 bn PAT in Q3 2018 Results (SP:N79.8k)
7. OKOMUOIL
Declares N5.9 bn PAT in Q2 2018 Results,(SP:N83.00k)
8. OKOMUOIL
Q2 2018 Result- Volumes Slump Drives Earnings Weakness
9. OKOMUOIL
Notifies That Certifications by ERA and FoEN on RSPO Are Spurious and Libelous
10. OKOMUOIL
Reports Q1 2018 Results – OPEX Grew by 116% YoY