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Nigeria Agriculture Sector - FY'18 Earnings Preview

Weak CPO prices will pressure FY'18 PAT                                                  

The Agriculture sector expanded by 2.5% y/y in real terms in the final quarter of 2018, with a particularly strong showing from Crop production. We attribute this to reduced violence across key food producing regions as well as the effect of the harvest. Accordingly, we forecast decent volumes from listed Oil Palm producers in Q4’18 amidst continued expansion in production.                                                    

That said, with Global CPO prices falling 5% in the quarter and Rubber prices also moderating, we project a 12% drop in revenue for major Crude Palm Oil producers in Q4’18. Similarly, with average CPO prices falling 19% y/y, we foresee a 4% moderation in FY’18 topline across the two listed producers.                                                        

Whilst both major producers tend to generally move in the same direction, we see a divergence in Interest expense, with PRESCO reporting a 34% y/y increase in FY’18 Net Finance Cost and OKOMUOIL reporting a nine-times drop in finance charges for the year. We attribute the higher PRESCO charges to generally higher Interest rates in the period as well as new loan acquisition. Meanwhile, the paydown of a €10 million SOCFINAF loan earlier in the year helped drive OKOMUOIL’s finance charges lower for the year.                                                      

Overall, driven by weaker toplines in 2018, we expect PAT figures across major Oil Palm producers to moderate 97% y/y for Q4’18 and 63% y/y for FY’18.