WED 29 DEC, 2021-theGBJournal– Nigerian CPO planters fared excellently in 2021FY, in terms of revenue growth. The performances recorded across the listed companies – OKOMUOIL and PRESCO – was influenced by a rally in the price of crude palm oil (CPO) globally (+28.6% y/y to USD1244.39/mt) which was driven by (1) rebound in CPO demand from key importers like China, after last year’s pandemic induced decline, and (2) supply deficit due to adverse weather conditions in Indonesia and Malaysia (large producers), and a labour shortage in the latter.
Higher prices, higher revenue: For context, our coverage companies, OKOMUOIL (+66.7% y/y) and PRESCO (+81.0% y/y) both recorded impressive top-line growths as of 9M-21. Peculiarly, both companies – OKOMUOIL (-87.0% y/y) and PRESCO (-55.3% y/y) – were able to bring down their cost of financing significantly in the review period, as improved cash generation supported loan repayment and reduced the need for overdrafts. Consequently, PAT came in higher at 132.1% y/y and 173.8% y/y, for OKOMUOIL and PRESCO, respectively. In light of the above, both companies – OKOMUOIL (+132.1%) and PRESCO (+173.8%) – recorded triple digit EPS expansions in the same period.
CPO prices to moderate in 2022E: In 2022, CPO prices are expected to trend lower as the significant supply deficit narrows. The World Bank estimates that the price of CPO will decline by c.14.0% to USD1,075.00/mt. The increased supply is hinged on greater production from the “large producers” buoyed by normal weather conditions in both regions and an improvement in labour market conditions in Malaysia. On the latter, Malaysian authorities are working on a special approval to bring in thirty-two thousand foreign workers into the country. Nonetheless, we acknowledge that soaring fertilizer costs could affect global output.
Volumes to support top-line expansion: Notwithstanding, we still expect revenue increases for OKOMUOIL (+1.0% y/y) and PRESCO (+9.0%) in 2022E, owing to higher volumes from both CPO planters. However, we cite the security challenges which may be exacerbated by election preparations, and the emergence of the Omicron variant as key downside risks for CPO planters. Also, we expect both players to retain control of the domestic market, with the existing
FX liquidity issues depressing competition from importers. Overall, we project EPS growth of 1.2% y/y and 6.0% y/y to NGN18.54 and NGN14.39 for both OKOMUOIL (2021E: NGN17.78) and PRESCO (2021E: NGN13.03) in 2022E.
Consequently, based on our blended valuation of both companies, we rate OKOMUOIL and PRESCO as “BUYs” with respective 2022E TPs of NGN175.00/s and NGN120.27/s.-Analysis by Cordros Research
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