Thursday, April 23, 2015 3:29 PM / ARM Research
Okomu Oil Palm Plc released audited results for 12 months ending 31st December 2014 wherein revenues fell 2.3% YoY to
N8.7 billion while PBT and PAT declined 21% and 26% YoY to N2.1 billion and N1.6 billion respectively.
Okomu also announced a 25 kobo dividend per share which implies a payout ratio of 15.4% (FY 13: 45.6%) and a yield of 0.9% using its last trading price.
Bearish commodity prices induces revenue weakness
Q4 14 revenues bucked the recovery witnessed in the last two quarters, declining 15.3% YoY to
N1.78 billion, 9% lower than our estimate, as prices across its two major commodities continue to display softness. Reflecting continued global supply overhang, rubber prices declined on average 36% YoY (-12% QoQ), whilst global Crude Palm Oil (CPO) prices dipped 17% YoY (QoQ: -6%). Over 2014, revenues were weighed lower by declining rubber sales (-37.4% YoY to N2 billion) in lock-step with downtrend in rubber prices (-30% YoY), which offset gains from CPO sales (+17.9% YoY to N6.6 billion). The uptrend in CPO sales largely reflects higher volume sales underpinned by extension of credit facilities to consumers which neutered the impact of softer CPO prices (-3.2% YoY). The aggressive sales policy was evidenced by the jump in days of sales outstanding which more than doubled YoY to 80 days.
Higher tax rate offsets net finance income gains
In contrast to declines in revenue, Q4 14 COGS rose (+28.6% YoY to
N956 million) resulting in 39.8% YoY plunge in gross profits to N799.8 million. The elevated COGS levels reflects more even accrual of cultivation costs over 2014 vs. when cultivation was concentrated in H1 14. Consequently, gross margins contracted 19pps YoY to 45.6%.
Okomu reported net operating expenses of
N790million in Q4 14 vs negative OPEX of N15.2 million in Q4 13 when management over-accrued CSR expenses in prior quarters. Largely reflecting gross margin pressures, Okomu recorded a 99% YoY contraction in EBIT to N9.6 million with corresponding margin falling 45pps to 0.5%.
Despite a 53.2% YoY fall in finance income to
N37.2 million, a 95% YoY contraction in finance expense to N3.1 million spurred nearly threefold YoY spike in net finance income to N40.4 million. The decline in finance expense emanated despite higher LT borrowings (+16% YoY to N1.9 billion) underpinned by a loan from Okomu’s parent company SOCFINAF, which suggests concessionary terms on the facility. Whilst the jump in net finance income pared back some of the gross margin weakness, PBT fell 94.8% YoY to N50 million with corresponding margin contracting 43pps to 2.9%. However, a fourfold surge in tax expense underpinned by minimal tax charges in the preceding three quarters resulted in to a post-tax loss of N516.5 million (Q4 13: PAT of N823.8 million).
USDNGN devaluation poses upside to revenues
Current results suggest depressed CPO and rubber price outlook is inducing management’s focus on volume growth to boost top-line. Revenues growth should be aided by impact of recent USDNGN depreciation, which asides providing more bang for rubber export dollars, should also result in higher local prices as importers (36% of domestic supply) try to pass on devaluation costs. Thus, we see a dynamic of the devaluation providing offsetting impact to still bearish commodity price outlook.
Nonetheless, we note that recent reports by Okomu of renewed tensions with its host community which saw 270 hectares of rubber plantation (~5% of total mature rubber acreage) being destroyed in January 2015 poses risks to volumes over the rest of the year should the trend continue. Adjusting our discount rate to capture recent rise in sovereign yields results in a 6% moderation in our FVE estimate to
Okomu trades at current P/E of 16.73x vs. 13.81x for its domestic peer Presco. (Adjusted for biological asset gains, Presco’s current P/E is 20.65x). Both stocks have declined 7.32% YTD with Okomu’s last trading price at a 30% discount to our FVE which translates to a BUY rating.
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