Neutral rating maintained despite improvement in EPS outlook over the ’21-22f period
Okomu’s earnings in Q1 ’21 were up 160% y/y to NGN5.3bn. Profitability was helped by both strong palm oil sales growth of 78% y/y to NGN11.bn and rubber sales (up +94% y/y to NGN1.2bn). While unit volumes were up by double-digits y/y for both products, strong price increases (52% y/y to N578k/tonne for palm oil and 43% y/y to NGN555k/tonne for rubber) were the primary drivers behind the topline improvement. We expect pricing to remain firm as the re-opening of the global economy is supportive for commodities.
We forecast sales of NGN33.2bn for ’21f, up 42% y/y. Our projection is driven by a sales growth of 39% y/y for palm oil. According to management, commissioning of a 5MW turbine – which will be fueled by empty fruiting bunches and fibre – is expected this quarter. In our view, this project, which was delayed by movement restrictions last year, has significant upside implications for the cogs line. Further down the P&L, we forecast opex growth of c.30% y/y, resulting from increased activities at Extension II. We expect capex, mostly focused on Extension II, to come in flattish y/y following management’s guidance. Overall, our EPS outlook over the next two years is up 15% on average. However, our price target of NGN91.2 remains unchanged because we have raised our risk-free rate assumption by +250bps to 12.5% to reflect the higher interest rate environment.
At current levels, our price target implies a potential downside of -5.5%. Okomu’s ’20 proposed dividend of NGN7.00/share surprised positively and works out to a yield of around 7.3%. Although management did not provide any guidance on dividends for ’21, we expect that strong y/y earnings growth and cash generation will lead to a similar dividend level for this current year. Year-to-date, Okomu shares are up +6.0% vs. the ASI’s -2.0% decline. We retain our Neutral rating on the stock.
Q1 ’21 results up significantly; backed by unit volume growth and pricing
Okomu’s Q1 sales of NGN12.6bn grew 80% y/y, driven by strong sales across both product segments. While unit volumes were up strongly, price increases during the period were more instrumental. PBT and PAT were up more significantly, by 130% y/y and 160% y/y respectively.
On a sequential basis, while sales were up 162% q/q PBT grew by 244% q/q. Compared with our forecasts, sales and PBT came in ahead by 79% and 68% respectively. For FY ’20, sales, PBT and PAT were all up 24% y/y, 18% and 40% y/y respectively. Okomu proposed a dividend of NGN7.00/share which implies a very attractive yield of c.7.3% at current levels.