Eleven (11) years ago, Nigerian money deposit banks were heavily exposed to margin loans, leading to AMCON purchasing all the margin loans or facilities that the banks granted to stock broking firms to purchase shares in the capital market. These facilities included all the non-performing loans granted by all the five commercial banks taken over by CBN then, amounting to combined toxic assets in excess of N2.2 trillion. Prior to this period, for 10 years (1999 – 2008), the Nigerian stock market grew, soared and gained extreme strength. The market experienced a period of record expansion and boom. Investors, market operators, regulators and market analysts were all pleased with this development. Read more below
Okomu Oil Palm PLC emerged the NSE30 stock of the week ended September 24, 2021. Share price and market capitalization appreciated by 5.77% W-o-W; gaining N6.00b W-o-W; closing at a market capitalization of N104.93bn. Okomu Oil is the 81st most traded stock on the NGX over the past 3 months (July 2 – September 30, 2021) trading a total volume of 9.87 million shares in 1,589 deals valued at N1.04b over the period. On net income, Okomu Oil placed a distant 20th with N7.387bn, while Dangote Cement topped the list with a net income (2020) of N275.08bn, followed by Zenith Bank (N230.37bn). Over the past three months, the share price moved +/- 2% a week. Share price volatility is less than 75% of NG stock over the past three months.
On the other hand, the NSE 30 appreciated by 0.08% w-o-w to close at a market capitalization of N16,695.67 Billion; a net gain of N14.44bn.
TABLE 1 – NSE30 COMPONENTS
|S/N||WEEK – 24/9/21||WEEK – 17/9/21|
|% +/(-)||AMT IN BN||% +/(-)||AMT IN BN|
|3||Guinness Nig Plc||0.00%||0.00||-3.23%||-2.19|
|8||NASCON Allied Ind.||4.59%||1.72||0.00%||0.00|
|10||Unilever Nig Plc||-2.22%||-1.72||0.00%||0.00|
|26||Dangote Cement Plc||0.41%||17.04||0.00%||0.00|
The Company operates through two segments: Palm oil products and Rubber products. The Company produces Banga cooking oil and natural rubber products. The Company’s plantation carries on the business of oil palm and rubber cultivation. The Company has ongoing plantation operations in Cote D’ivoire, Liberia, Guinea, Cameroon, Kenya and Indonesia.
From the 2019 audited account, when compared to year 2018, most of the profitability and efficiency metrics declined. For instance, Total revenue declined by 11.31%; operating revenue (-6.86%); EBIT (-27.44%); EBT (-27.22%); profit after tax from continuing operation (-40.61%) and Comprehensive income after tax (-34.85%).
Equally in 2019, return on equity dropped to 18.40% from 28.90% in 2018, despite that financial leverage increased by 10.15%, which ordinarily should have boosted the ROE, but marred by 2019 drop in net profit margin and asset turnover compared to 2018. In essence, the company could not make optimal use of the increased asset base to generate more revenue in 2019, maybe because the biological asset class, the major boost on the total asset in 2019 was yet to be fully put in use.
According to the Company Chairman’s report; the decline in 2019 was due to the immense surge in illegal imports of Olein into Nigeria that led to the effective log jamming of all sectors of the oil pipeline for nearly two quarters. He also stated that the drop in the world market price for crude palm oil caused by US-China trade and increase in import duties by India, the world largest importer of palm oil, also caused the poor performance in 2019.
By the end of Q1 2020, things improved. Operating revenue in Q1 2020 grew by 65.5%; Total comprehensive income grew by 101.4%; Return on Equity by 88.41% and return on total assets by 118.42%. The strong movement may not be unconnected to the favourable business environment as a result of government policies – the closure of all borders to CPO and other allied products led to the significant decline in illegal products in the marketplace from third quarters. The increase in revenue of about 65.52% was attributable to increased domestic sales due to this border closure. Apart from the closure, CBN intervention programs in support of domestic agriculture also helped coupled with good domestic pricing.
The initial shock of COVID-19 on commodity supply-demand chain disruptions, drop in global palm oil price to its lowest in May 2020 somehow affected the company’s performance in Q2 2020 side by side Q1 2020, though an increase compared to Q2 2019. Operating revenue for Q2 2020 for instance grew by 57.9% compared to Q2 2019, but in Q1 2020, it was 65.52%, same with total comprehensive income that grew by 58.4% in Q2 2020 to Q2 2019. Return on equity and return on total assets in Q2 2020 grew by 47.75% and 75.75% respectively to Q1
FY 2020 results of the company followed an earlier forecast based on global palm oil price recovery, increase in global consumption by 2% to 76.2 million tons and market characteristics and forces were expected to continue to reassert. The company in 2020 recorded a combined revenue of N23.4 Billion; 24% higher than 2019 consolidated revenue in 2019. Earnings before tax was 18% higher YoY and taxes were 57% lower YoY leading to a consolidated net profit of N7.38 Billion; being 34% higher than 2019, mainly because of higher product prices and lower tax commitments.
For the 2021 half year ended June 30, 2021, the company declared net income of N9.535bn; a growth of 138.14% compared to H1 2020 net income of N4.007bn. This growth is not unconnected to the drop in finance cost. Finance cost dropped from N310.649 Million (H1 2020) to N80.802 Million (H1 2021), though turnover grew by 81.37% from N13.527bn (H1 2020) to N23.627bn (H1 2021). Forecasted turnover and net income is to hit N39.680bn and N13.905bn respectively by the end of 2021. Going by the H1 2021 results, this projection is most likely to be achieved.
In terms of solvency, the company’s debt to equity ratio at 29.4% is satisfactory, since it is below 40%, coupled with the fact that the debt is well covered by the company’s operating cash flow put at 168.5% above the acceptable threshold of 20%. On profitability, the company returned N24.27 for every Naira of shareholder’s investment while Presco Plc (its peer) returned N15.16 for every Naira of shareholder’s investment.
From the foregoing analysis, forecast and utilizing a mixture of Dividend Discount Model (DDM) and earnings multiples valuations, we maintain a BUY recommendation.
All of the views expressed in this report are independent views/opinions, recommendations regarding the companies, securities, industries or markets discussed here and not influenced by any compensation or remuneration from referenced company(ies).
Idika Aja, ACS, writes from Lagos and can be reached on 08034003768
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