Okomu’s Q3 strong performance attributable to aggressive expansion

The aggressive expansion plan embarked upon by the management of Okomu Oil Palm Plc, with a view to meeting local consumption and competing well at the international arena has yielded fruit as the company recorded a strong performance in the third quarter of the year.

For the first nine months through September 2015, Okomu’s net income increased by 22.98 percent to N2.55 billion, from N2.0 billion last year. Sales moved by 12 percent to N7.75 billion as the company ramps up facilities to boost top lines amid slow economic growth.

The Nigerian producer of the kernels third quarter sales growth eclipsed the 1.62 percent increase recorded in 2014 as the company’s stocks continues to attract investors.

Year-to-date, the shares of Okomu have gained 19.1 percent (vs. -16.2% for the NSEASI)

“In the short term, we expect top line growth to be driven by increased volumes as the company continues its aggressive expansion plans,” said Olajumoke Okeowo, equity research analyst with FBN Capital, in a November 4 note to BusinessDay.

“We believe the company is also on track to meet its three year target of cultivating an additional 12,000 hectares of palm trees by end-2018,” said Okeowo.

Okomu had borrowed as much as N2 billion Federal Government CACS to finance the construction of additional production lines and upgrading its existing milling capacity from 30t/hr to 60t/hr. The company has been financing or serving the loans.

Nigeria’s palm oil production volume to land area ratio of 0.3 tonnes per hectare (Te/ha) compares with Malaysia’s 3.6te/ha and Indonesia’s 3.0te/ha and, on a per capita basis, consumption at 8kg is below the global average of 21kg. Demand for palm oil outstrips local supply by almost 50 percent According to FBN report.

Further analysis of the balance sheet of Okomu Oil shows cost of sales reduced by 58.36 percent to N1.22 billion which explain the 64.46 percent drop in gross profit to N6.52 billion. Operating expenses were up by 99.89 percent to N3.67 billion.

Additionally, net margin, a measure of profitability and efficiency increased to 32.90 percent in 2015 from 29.0 percent in 2014. Gross profit margin moved to 84.12 percent to 84.12 percent in 2015 from 57.47 percent last year.

Okomu’s total assets increased by 6.58 percent to N33.04 billion in 2015 as against N31 billion the previous year.

The company’s share price closed at N28.82 on the floor of the exchange while market capitalization was N27.50 billion.

“We see sales and PBT growing by 15% y/y and 32% y/y respectively in 2015E. Beyond 2015, we forecast average sales and EPS growth of 7.2% y/y and 14.9% y/y respectively over the next two years,” said Okeowo.