The Okomu Oil Palm Plc FY 2016: Great finish to an epic year
- Over FY 16, The Okomu Oil Palm Company Plc. (Okomu) reported a nearly two-fold YoY jump in earnings that was buoyed by upsurge in commodity prices (CPO and rubber) and the company’s focus on containing cost. In view of the buoyant operating performance, the company raised its dividend per share to
N1.50 (FY 15:N0.10) yet still had sufficient capital to pursue its expansion plans.
- Higher commodity prices bloat top-line: Okomu reported its fastest pace of revenue growth in five years as favourable pricing environment drove sales at the Crude Palm Oil (CPO) segment to record high even as rubber turnover recovered from the 2015 trough despite weaker volumes (-8% YoY to 7,140MT). Pertinently, the robust CPO sales in the review period was buoyed by higher domestic CPO prices—which reflected combined impact of naira depreciation and bullish global CPO prices (+13% YoY) that deterred imports (29% of total supply).
- Cost containment drives operating margin to record high: Given the price-induced revenue growth, Okomu reported a moderate rise in input (+5% YoY) and operating (+22% YoY) costs despite rising energy expenses. According to management, the benign cost is a fall-out of deliberate increase in import substitution—with imported raw materials now reduced to about 10% of COGS—and tight control on labour costs (65% of overall cost). Consequently, operating margin rose to a record high of 48% (operating profit: +112% YoY).
- Price and cost gains underpin bullish earnings outlook: Going forward, we expect Okomu’s top-line to sustain its double digit revenue growth (+38% YoY to
N19.8 billion) for the third consecutive year in 2017 largely on the back of the still favourable price regime (2017E: CPO: +38% YoY, rubber: +44% YoY). The price hike, operational efficiency and lower FX loss should sustain the company’s robust bottom-line (+80% YoY toN8.8 billion).
- Largely reflecting strong earnings growth thus far, Okomu has rallied 30.7% YTD, as with peer Presco (+17.2% YTD) outperforming the broader NSEASI (-6.2% YTD). The stock trades at current P/E of 10.20x (forward: 5.6x) vs. 11.61x (forward: 8.46x) for Bloomberg Middle East & Africa peers with last trading price of
N52.51 at a discoun
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