Equity Report - The Okomu Oil Palm Plc 9M 18: A Rejuvenating prospect
- We have engaged with management of Okomu following the release of its nine-months 2018 result and thus revise our estimate for FY 18E and FY 19F.
- While we hold our views on Q4 volumes and input cost, nine-months run-rate informs some adjustment to estimate. On volumes, the impressive run in volumes over 9M 2018 (+10.5% YoY to 32,032 MT) informs a revision to FY 18 revenue of N20.3 billion (+7% YoY). Furthermore, given the abysmally low input cost in Q3 18 relative to trend levels, we have revised our FY 18 cost of sales estimates lower by 15.7% to N4.1 billion (previous: N4.9 billion) and made slight adjustment to FY 18E our interest expense estimate (+38% YoY to N380 million) in line with 9M 18 run rate of N332 million.
- Over in 2019, we anticipate a modest growth in CPO volumes which brings our CPO sales expectation for 2019 to N16.3 billion. Father out, from 2020 we anticipate boost to Okomu’s production emanating from the harvest of fresh fruit bunches from its extension 2 plantation. As a result, we have increased our FY 20-22F sales forecast by 12% on average. Overall, the upward revision to our sales forecast over the medium term informs our decision to raise FVE by 6% to N97.75 (previous: N92.45) thus, we maintain our STRONG BUY rating on the stock. On our 2019 numbers, Okomu trades at a forward P/E of 8.55x relative to 9.2x for Presco and Bloomberg Middle-East and Africa (MENA) peers of 13.5x.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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