Rating: Hold
Current Market Price: N110.00
Latest Dividend: N7.00
Year High: N116.50
Year Low: N85.00
Fair Value: N103.52
Equity Analyst: Tunde Segun Jeariogbe
Introduction/Key Financials
- We have carefully observed the half-year financial indices of Okomu Oil Palm Plc for the half-year ended 30th June 2021, compared the same with figures released in the corresponding period of 2020 for the purpose of establishing growth.
- Nevertheless, we have carefully chosen our valuation approach, while using the last full year’s financials for projections and other valuation processes.
- Note that the current half-year performance soared over the figures released at the end of the corresponding period of last year.
- We are of the opinion that the growth observed is largely due to the government’s encouragement and support for the nation’s agricultural sector. The current economic situation where purchasing power is down despite the high inflation has left consumers with no choice but to concentrate more on food at the expense of necessities of life.
- See below for a detailed comparison of the just-released numbers, against those of the comparable period of 2020.
Company figures
- As noted above, the Turnover reported for the period stood at 75.67% above the comparable year. In other words, the Turnover figure for the quarter was N23.62 billion, from N13.52 billion.
- The direct cost of sales generated through the period is valued at N1.94 billion, higher than the N1.08 billion estimated at the end of the 2020 half-year.
- Due to the higher revenue reported, Operating Profit is 115.62% above the comparable quarter of 2020.
- Operating Expenses value reported at the end of the period is the same as N9.15 billion, 38.05% above the N6.63 billion used through the comparable period of last year.
- Finance Cost used through the period is valued at N80.80 million, a drop by 73.99% from the N310.64 million reported in its 2020 half-year numbers
- Profit before Tax is currently valued at N12.44 billion as against N5.50 billion achieved at the end of the 2020 half-year
- Having made allowance for Tax Expense, the board of Okomu Oil reported a profit for the period of N9.53 billion, as against N4.00 billion posted in its 2020 half-year.
- Current Assets at the end of the period is valued at N19.35 billion, the same as 21.86% above the N15.88 billion assets valuation at the end of the 2020 half-year.
- Non-Current Assets, on the other hand, stood at 21.53% above the corresponding period’s N40.48 billion against N33.60 billion
- Current Liabilities equally build by 70.01% over the corresponding period at N8.39 billion, versus N4.93 billion in 2020.
- Non-Current Liabilities for the period is valued at N12.31 billion, this is 5.99% above the 11.62 billion posted in the first half of 2020.
- Net Assets at the end of the period was estimated at N37.83 billion, 20.96% above the N31.29 billion stated in its 2020 half-year.
- Retained Earnings also improved above the 2020’s to N35.49 billion, versus N28.93 billion.
Financial Strength/Solvency Ratios
- Okomu Oil’s Debt Ratio was stable at 34.41% through the two periods compared and only adjusted up by a marginal 2.83%.
- Total Debt to Equity Ratio was also fairly stable through the periods. We have estimated that Okomu’s total debt is the same as 54.74% of the equity value at the end of the period.
- We also estimated the Equity Ratio at 62.85% slightly down from the 63.20% in the 2020 half-year. This implies that the company’s equity is currently 62.85% of the Asset. In other words, more equity was used in the running and servicing of the company’s assets through the period.
- Patronage in the share price of Okomu Oil seems low at the current beta value of 0.65x, which could be linked to its low share outstanding.
Profitability Ratios
- The estimated EBITDA margin for the period stood at 53.02%, this is the same as 23.44% above the 42.95% in 2020.
- In the same trend, Pre-tax Margin grew by 29.84% to the current estimate of 52.69% against 40.69%, this is a confirmation of growth in profitability within the compared periods
- Cost of Sales stood at 8.22% of the company’s Turnover, which is only a 2.65% drop in profitability when compared to the 8.01% estimated at the end of the 2020 half-year earnings. It is noteworthy that this ratio is highly impressive, and confirmed that Okomu Oil’s business is highly profitable.
- Return on Equity is currently estimated at 25.20%, far higher than the 12.81% in 2020.
- See below for detailed profitability ratios:
Efficiency Ratios
- Measuring management efficiency, we have tested few efficiency ratios.
- Operating Expenses to Turnover Ratio was confirmed at 38.76%, which is a 20.96% improvement in management efficiency over the comparable period.
- Turnover to Total Assets was also considered. Thus, the company achieved a 43.60% improvement in management efficiency, moving from 27.33% to N39.25% within both periods.
- See below for other efficiency ratios.
Investment/Valuation Ratios
- Compared to the last half-year, Okomu Oil earned N10.00 per unit, which is 137.98% growth over the N4.20 half-year of 2020.
- Our half-year adjusted PE-Ratio dropped to 11.00x from 16.78x, despite the outstanding price difference between the periods compared. Understand that the drop was complimented by the high Earnings per Share achieved at the end of the period.
- Similarly, the half-year earnings is estimated to have yielded 9.09% of the price of Okomu Oil on the exchange as of the time the result was made available to investors. This is outstanding, especially when compared to rates in the fixed income market.
- Presently, the estimated half-year Book Value of Okomu Oil stood at N39.66 per share, a 20.96% growth over the N32.79 per share of the previous half-year. Note that Book Value stood far below both the current market price and our fair value for Okomu Oil.
- Confirming the above is the estimated Price to Book Value that stood above unity.
- See below table for details:
Valuation
As noted above, having considered the financial stand of Okomu Oil Plc, with conservative projections and taking into account the visible risk elements, we have fairly priced each unit of Okomu Oil share price at N103.52 and have rated it a Hold.
