It is glaring that the impressive figures of Okomu Oil Plc and Presco Plc have buoyed investors’ confidence so far and the good tidings is that analysts are sanguine the top palm oil producers will maintain profit growth this year.
The biggest palm oil producers raked in N88.67 billion in sales for the first six months of 2023 from N82.51 billion in the similar period of 2022.
Further checks revealed Okomu Oil Palm recorded revenue of N38.07 billion from the local market (Nigeria) while N2.53 billion was earned from export sales in the first half of 2023.
Analysts said both firms are taking advantage of the opportunities in Nigeria’s agri-business value chain that is responsible for the company’s consistent earnings growth in the last five years.
“Nigeria’s oil palm imports from Malaysia will continue to increase for the time being because our investment in the industry is still very insignificant,” Henry Olatujoye, managing director, of Palmtrade and Commodities Development Nigeria Ltd told BusinessDay.
The country’s palm oil import from Malaysia increased to 92,961 metric tons (MT) between January-April 2023, from 20,513 MT in the corresponding period of 2022 which indicates a 72,448 MT increase.
“We estimated that our local/domestic consumption is averaging 2.4 million tons in a year, and our first-class developers – Okomu, Presco, and others, do not annually produce up to 800,000 tons,” Olatujoye said.
Nigeria’s Palm Oil industry, which was a revenue spinner for the country in the 60s before the discovery of crude oil in commercial quantities, is still in its embryonic stage and it is in dire need of funding and transformation policies.
Nigeria was in the 1960’s the world’s largest palm oil producer with a global market share of 43 percent.
According to the United States Department of Agriculture (USDA), Nigeria is the 5th largest producer of crude palm oil (CPO) with less than 2 percent of total global market production of 74.08 million MT, in 1966 Malaysia and Indonesia surpassed Nigeria as the world’s largest palm oil producer.
Since then, both countries combined produced approximately 80 percent of total global output, with Indonesia alone responsible for over half i.e. 53.3percent of global output.
Okomu oil palm
Okomu oil palm’s profit after tax dipped 4 percent to N16.2 billion in the first half of 2023 from N16.84 billion in the same period of 2022.
The oil palm recorded a total revenue of N40.6 billion in the first half of 2023, a 0.5 percent decline from N40.8 billion in the first half of 2022.
Okomu oil palm’s local sales contributed the most of N38.07 billion to the total revenue in the first half of 2023 while export sales amounted to N2.53 billion during the period.
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Local sales grew marginally by 0.5 percent to N38.07 billion in the first half of 2023 from N37.88 billion in the first half of 2022.
However, export sales dipped 11.8 percent to N2.53 billion in the first half of 2023 from N2.87 billion in the similar period of 2022.
Analysts at CardinalStone Securities say Okomu is Nigeria’s most profitable publicly traded Agric company, boasting 19,061 and 7,335 hectares of palm oil and rubber plantations.
“The company’s gross and EBITDA margins have consistently remained in the top 60th percentile compared to the margins of other listed Nigerian companies. It has also consecutively increased the dividend paid in the previous five years, aided by a strong cash position,” CardinalStone analysts said in a note.
“In our view, the company is on track to grow CPO volumes by 20.6 percent to 60,000 tons and rubber volumes by 10.0 percent to 9,500 tons in 2023 (Q1’23 growth of 40.5% for CPO and 4.3% growth for rubber) on the back of improved milling capacity and a renewed partnership with small scale farmers.”
CardinalStone analysts further said, however, overall operating cost is likely to rise due to higher raw material costs and employee benefits expenses, which have been indexed to inflation. “However, the passthrough from a strong revenue surge should mask the impacts of cost concerns and leave the company’s EBITDA margin 2.0ppts higher YoY at 49.7 percent.”
The firm’s cost of sales grew 14.7 percent to N11.1 billion from N9.68 billion in the comparable period.
Okomu oil’s cash and cash equivalents dropped to N8.34 billion in the first half of 2023, a 53.3 percent decline from N17.85 billion in the first half of 2022.
Movements in the cash positions show net cash inflow from operating activities dipped to N18.67 billion, a 17.5 percent decrease from N22.64 billion in the comparable periods.
Net cash outflow from investing activities shows a negative cash flow of N3.15 billion from a negative cash flow of N6.57 billion in the period reviewed.
Okomu oil palm’s net cash inflow from financing activities stood at N13.02 billion negative cash flow in the first half of 2023 from N8.18 billion negative cash flow in the first half of 2022.
Earnings per share dropped to N16.98 billion from N17.65 in the period reviewed.
Presco
Presco’s profit after tax increased to N15.08 billion in the first half of 2023, up 12 percent from N13.47 billion in the first half of 2022.
The firm’s revenue which was obtained from only the local market amounted to N48.07 billion in the first half of 2023, a 15.2 percent increase from N41.71 billion in the same period of 2022.
Analysts at CardinalStone Securities say the company is the largest publicly traded Agric company by plantation size with a total plantation of c.40,000, supported by the recent acquisition of Siat Nigeria Limited (SNL), which increased the oil palm area planted by
15,000 hectares and boosted matured areas by 40.1 percent.
“The company has consistently raised the total dividend paid in the last five years, aided by a strong cash position supported by demand for its premium-priced Refined Bleached Deodorized Oil (RBDO),” CardinalStone analysts said, adding that Milling capacity currently stands at 500 tons per day, and the company is on track to deliver an output of 90,000 metric tons of CPO and 60,000 metric tons of RBDO in 2023.
“We also expect the company’s EBITDA margin to decline by 2.1ppts YoY to 39.9 percent on the impact of anticipated stability in diesel prices and strong topline growth. We also expect the company to utilize its strong cash position to reduce the current portion of its long-term debt by N13.5 billion in 2023.”
CardinalStone analysts added that this repayment and expected moderation yields should cascade to lower interest expense pressure.
The cost of sales grew 41.1 percent to N16.18 billion in the first half of 2023 from N11.47 billion in the similar period of 2022.
Presco’s cash and cash equivalents stood at N17.71 billion in the first half of 2023, 2 percent increase from N17.37 billion in the same period of the prior year.
Movement in cash positions shows the net cash generated from operating activities stood at a positive cash flow of N17.14 billion in the first half of 2023 from a negative cash flow of N2.51 billion in the first half of 2022.
Net cash used in investing activities stood at N4.73 billion negative cash flow from N2.95 billion negative cash flow in the comparable periods.
Presco’s net cash used in financing activities stood at a negative cash flow of N2.57 billion in the first half of 2023 from N6.13 billion positive cash flow during the period reviewed.
Earnings per share dropped to 1508 kobo in the first half of 2023 from 1347 kobo in the first half of 2o23.
