For Okomu Oil: Analysts say Rebound is on the Horizon
Vetiva Capital Analyst, Onyeka Ijeoma, has revealed the firm’s expectation that rebound is on the horizon for Okomu Palm Oil Company Plc.
Quite a number of operators in the fast moving consumers’ goods sector with inelastic or at least partial inelastic demand are enjoying border closure.
It means less competition with products with comparative cost advantage that is lacking in the local economy.
Okomu Oil Palm Plc was embroiled in a tough competition from infiltrated products from neighbouring countries.
Meanwhile, Vetiva’s analyst said that stronger crude palm oil (CPO) prices will drive Okomu’s top line in the second half of 2020.
There have been pressure on demand but government policy on border closure is positive for the palm oil producing company.
Though, Vetiva Capital equity research analyst Onyeka Ijeoma advises investors to sell follows a ₦53.80 target price place on the stock.
On Wednesday, Okomu Palm Oil Company’s stock traded at ₦77.40 on the local bourse, as its market capitalisation settled at ₦73.832 billion.
In 2019, Okomu Oil revenue moderated, dropped 7% year on year to ₦18.9 billion.
Vetiva’s analyst said the drop in revenue was driven solely by oil palm business line, with segment losing 8% of revenue in 2019.
Vetiva explained that, according to the management, oil palm was negatively impacted by lower CPO pricing as illegal import of Olein, a form of refined CPO, flooded the market.
The flood came despite a relatively stable demand, thus placed pressure on price.
Meanwhile, analysts said in spite of higher CPO price, which rose 6% year on year, CPO revenue moderated.
It was dragged by 14% moderation in selling price.
Vetiva’s analyst said the management confirmed a sharp drop in illegal smuggling since FG decided to close land borders.
“We now expect CPO revenue to jump 9% year on year to ₦17.3 billion, driven by a 4% increase in CPO production and 5% increase in average prices”, Vetiva explained.
With rubber prices expected to remain stable in 2020, and production forecast to rise by 11%, analyst projects a 10% jump in rubber revenue to ₦3.3 billion.
Vetiva’s analyst expect Okomu Oil to record a 9% year on year growth in top line to ₦20.6 billion in 2020.
The company’s earnings has been projected to pick up after two years of decline.
In the note, Vetiva Capital said after steady decline between 2017 and 2019, it expects Okomu Oil to report higher profit in 2020.
Meanwhile, operating profit is expected to jump by 24% year on year to ₦9.2 billion, driven by expected reduction in operating expenses.
However, profit will come in 14% higher, with growth temper by rising finance costs.
“We forecast a 15% year on year jump in profit after tax to ₦5.8 billion and 12-month target price of ₦53.80.