TUE, 01 NOV, 2022-theGBJournal| ‘’Underwhelming.’’ That is how one analyst described OKOMUOIL’s Q3-22 performance after the company released its Q3-22 unaudited financials Monday.
Overall, profit before tax declined by 49.9% y/y to N1.19 billion in Q3-22. Following a tax credit of N24.41 million, profit after tax came in at N1.21 billion (Q3-21: N2.07 billion) translating to a 41.3% y/y decline.
The company reported a standalone EPS of NGN1.27 (Q3-21: N2.17). The decline in EPS is primarily due to a 41.9% y/y decline in operating profit. However, the 9M-22 EPS increased by 55.6% y/y to N18.92 (9M-21: NGN12.16).
OKOMUOIL’s revenue grew by 27.0% y/y in Q3-22 (9M-22: +61.6% y/y), primarily driven by a sustained growth in its local (+52.4% y/y | 89.2% of revenue) sales line, amid a decline in export (-46.7% y/y | 10.8% of revenue) sales. Sequentially, revenue declined by 53.5% q/q on a quarter-on-quarter basis.
Gross margin contracted by 33.77ppts to 49.9% in Q3-22 (Q3-21: 83.6%) as cost of sales (+289.0% y/y) grew faster than revenue (+27.0% y/y). We believe the higher costs emanated from the impact of higher crude oil prices on energy costs and the cost of fertilizers. Consequently, operating margin declined by 17.18ppts to 14.5% (Q3-21: 31.7%) amid a 13.5% y/y decrease in operating expenses.
In 9M-22, the gross margin declined by -18.55ppts to 71.3% (9M-21: 89.8%), while operating margin increased by 210bps to 50.0%.
Net finance cost came in at N179.98 million (vs net finance income of N80.79 billion in Q3-21), following a 489.5% y/y increase in finance costs and a 97.7% y/y decline in finance income. The growth in finance costs is due to higher bank charges (Q3-22: N18.47 million | Q3-21: N6.51 million) and interest on long term loans (Q3-22: N160.36 million | Q3-21: N13.93 million).
The significant increase in cost of sales underpinned a significant dip in profitability. Though we acknowledge 9M-22 paints a different picture following the significant positive outturn OKOMUOIL recorded in H1-22.
Cordros Research analysts are optimistic, and expect OKOMUOIL to see out the year on a positive note, given that preliminary numbers for 2022 already surpass 2021FY print.
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