Like this:
Like Loading...
" />
Published On: Fri, May 12th, 2017

Why Is Okomu Palm Such A Resilient Stock?

Kirk Leigh
Okomu Palm Oil Company has had a terrific one year growing at a steep pace despite a drag on the economy and hiccups for manufacturing companies. With the economy showing signs of recovery, the company is likely to just ride the wave to figure as defensive stock, one that provides a constant dividend and stable earnings regardless of the state of the overall stock market.
Closing at N48.52 Monday 8, the stock has delivered capital gains of 62 percent since July 2016 when it sold for N30. Relative to the All Share Index, the stock has delivered returns of 15 percent in the last six months compared to the less than one percent of the market and 65 percent in the last twelve months compared to one percent by the market or a one year return of 67.25%, according to data compiled by Bloomberg. Investors are willing to pay N7.23 per naira of the company’s earnings as indicated by its PE ratio of 7.23. This is encouraged by the yield to date of 20.79%.
Indeed, analysts have an ‘outperform’ recommendation for the company whose stock in trade is palm oil production and export with a median target of N57 for its stock price. That the company has less than N2 naira to hit that target amidst the recovery presupposes that the forecast may have to be revised as near as the week beginning May 15.
According to the Financial Times, as of May 05, 2017, the consensus forecast amongst 5 polled investment analysts covering The Okomu Oil Palm Company Plc advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Jul 26, 2016. The previous consensus forecast advised investors to hold their position in The Okomu Oil Palm Company Plc.
The 5 analysts offering 12 month price targets for The Okomu Oil Palm Company Plc have a median target of N57.00, with a high estimate of N68.69 and a low estimate of N45.02. The median estimate represents a 17.53% increase from the last price of N48.50.
The company’s financial performance in the 2017 first quarter was solid enough to justify the confidence reposed on it by investors and analysts as revenues spiked 77.3 percent to N5.89 billion from N3.33 billion. Even if cost of sales rose 138 percent from N529.78 million to N1.264 billion, gross profit buoyed to a healthy N4.63 billion from the former position of N2.80 billion, a 65.7 percent rise.
Pre-tax profits took the hint from the soaring gross position to hit a 113.8 percent improvement to N3.5 billion from the N1.63 billion achieved earlier. But perhaps what got the triune of management, shareholders and analysts smiling was the 92.3 percent profit haul of N3.07 billion compared to the N1.6 billion stash of the equivalent quarter.
Another bright spot was that despite the drop in gross profit margin in the period, the company managed to pull up pre-tax and net profit margins. Gross profit was down to 78.6 percent from 84.1 percent while pre-tax proft margin climbed to 57.6 percent from 49.15 percent. Net profit margin jumped to 52 percent from 48 percent in the period under review.
Year on year for 2016, Okomu Oil Palm Company PLC grew revenues 47.51% from N9.74bn to N14.36bn while net income improved 84.62% from N2.66bn to N4.91bn. Signs of this were rife midyear in 2016 when turnover grew 51.2 percent to N7.55 billion from N4.99 billion with local consumption accounting for 90 percent of sales.
We had predicted that it was early signs that the company’s revenue would surpass the N9.74 billion levels achieved in fiscal 2015 and beat its own 2016 estimate of N12.31 billion.
We had pointed that working in the company’s favour was the policy environment which tilted towards agriculture that could lead to reduced costs of inputs like land and labour. A case in point is the recent 11,400 hectares of land bought in Edo State’s Ovia North East and the hordes of local, cheap labour contracted in the area.
The oil palm company managed down the cost of sales in the period by 10.4 percent to N649.61 million from N724.811 million thus growing gross profit by a handsome 61.5 percent to N6.9 billion from N4.27 billion. Even if operating expenses rose almost 50 percent, operating profit doubled in the period. Operating cost moved up from N1.92 billion to N2.86 billion and operating profit moved up to N4.04 billion from N2.35 billion.
The strong signals coming from Okomu in the market and its fundamentals are good sign enough for investors to place their bets on the indigenous player in the Nigeria Stock Exchange.

%d bloggers like this: