Okomu Oil’s (Okomu) Q1 2019 earnings came in weaker than expected, down -71% y/y to N1.0bn. Compared with our forecast, earnings missed by around 50%. Following discussions with management, we expect the difficult business environment to persist over the next three quarters. In Q1, field operations slowed down considerably on days leading up to elections, which weighed on performance during the period.
While this event would not re-occur this year, the continued pressure on consumer wallets, a relatively high global crude palm oil (CPO) inventory due to India’s import tax increases and a flood of smuggled CPO and olein products into the local market continue to be of significant concern and weigh heavily on our revised earnings’ outlook for 2019E.
These factors forced local CPO prices downwards and limited unit volume growth in Q1. Okomu’s Q1 realised average CPO prices of N364,136 (US$1,011) per tonne declined -7% y/y while CPO unit volume sales were flattish y/y. Additionally, rubber sales remain under pressure due to persistent port issues which have constrained rubber exports.
Given these headwinds, we have cut our EPS forecasts over the 2019-20E period by -21%. We do not expect the local glut to ease during the peak season (H1), with the market possibly stabilising in Q4. Our new price target of N64.7 is down by around 18% and implies a potential downside of -7.5% from current levels.
Year-to-date, Okomu shares have shed around -8%, in line with the NSE ASI’s performance. We retain our Neutral rating on Okomu shares which are trading on a 2019E P/E multiple of 10.2x for an EPS growth of 37.2% in 2019E.
Q1 2019 PBT declined -68% y/y to N1.3bn
In Q1, all key line items on the P&L worsened on a y/y basis. While sales were down -43% y/y, PBT and PAT both fell by -68% y/y and -71% y/y respectively. Sales for oil palm and rubber declined by –45% y/y and -27% y/y to N3.5bn and N721m respectively. The more substantial y/y decline on the PBT line was driven by a gross margin contraction of c.-1000bps y/y to 80%.
This completely offset any benefits accruing from a double-digit y/y decline in operating expenses. Sequentially, PBT and PAT both worsened even though sales grew by 18% q/q. The trend was broadly similar in Q4 2018. Q4 sales of N3.6bn declined -2.8% y/y, while PBT and PAT both declined by -18% y/y and -63% y/y to N1.6bn and N1.3bn respectively. The topline decline, the third in a row, was primarily driven by lower rubber sales which fell by around -11% y/y to N879m.
SOURCE: PROSHARE NIGERIA
Dangote Sugar Refinery Revenue recovers but cost pressures remain
Dangote Sugar in its recently released 9M 2019 financials reported a marginal y/y growth in revenue to N117.4 billion in 9M 2019 from N116.8 billion in 9M 2018. However, on a q/q basis, Revenue dipped 12.2% q/q to N37.1 billion in Q3 2019 from N42.2 billion in Q2 2019. We note Revenue in Q3 2019 came in higher than Q3 2018 Revenue by 13.4% y/y. Meanwhile, Net Income declined 12.0% y/y to N14.7bn for 9M 2019 while declining 6.2% q/q to N3.7 billion for Q3 2019.
We have revised our revenue estimate and consequently profit lines upward given recovery in volumes on the back of reduction in influx of smuggled sugar as well as recovered market share following price increase by key competitor, Golden Penny (Flourmills). However, we note that cost pressures stemming from higher raw sugar price as well as increasing freight costs due to the Apapa wharf gridlock remains a source of concern. Thus, despite an upward revision of our key profit lines, they remain lower than 2018 numbers.
We raise our target price for Dangote Sugar to N13.87/s from N13.27/s previously while we maintain our Hold recommendation on the stock given. We note that investors’ interest in the stock has improved over the past few months given attractive dividend yield as well as news of the border closure. We are however less optimistic given the uncertainty around the timeline for the border closure. We arrive at our target price using a combination of the DCF and relative valuations in a ratio of 60:40.
Dangote Sugar in its recently released 9M 2019 financials reported a marginal 0.6% y/y rise in Revenue to N117.4 billion in 9M 2019 from N116.8bn in 9M 2018. However, on a q/q basis, Revenue dipped 12.2% q/q to N37.1bn in Q3 2019 from N42.2 billion in Q2 2019. However, we note Revenue in Q3 2019 came in higher than Q3 2018 Revenue by 13.4% y/y which suggests the possibility that the company may be feeling the positive impact of the border closure which has limited entry of smuggled sugar.
Across business segments, sales of the 50kg bag category grew 0.9% y/y to N111.2bn while Revenue from retail sugar was up 2.7% y/y to N3.3bn. On the other hand, Revenues from molasses and freight services were down 26.8% y/y and 7.3% y/y. Furthermore, we compared business segment growth in Q3 2019 with the same period in 2018. We observed strong Q3 2019 y/y recovery in the 50kg bag category (up 15.4% y/y) and Retail sales (up 7.3% y/y). The strong rebound reflects reduction in the influx of smuggled sugar.
The Cost of Sales (adjusted for depreciation) was up 2.4% y/y to N85.4 billion for 9M 2019 from N83.3 billion in 9M 2018. The y/y increase in Cost of Sales reflects the mild pressure on raw sugar prices in the first nine months of the year (our benchmark raw sugar price is up 2.2% y/y). This is notably evident in the 4.6% y/y increase in raw material costs. On a q/q basis, Cost of Sales fell by 13.3%, higher than the 12.2% q/q decline in revenue.
The decline in Cost of Sales reflects lower volumes as well as softer q/q raw sugar price (Q3 2019 vs Q2 2019). Against this backdrop, Gross Profit fell 4.1% y/y to N32.1 billion in 9M 2019 from N33.4 billion in 9M 2018. On a q/q basis, Gross Profit was down 8.6% to N9.0 billion in Q3 2019 from N9.9 billion in Q1 2019. Gross margin was 27.3% in 9M 2019, 1.3ppts lower than the 28.6% reported for 9M 2018.
Banks Boosts Total Assets By 10% to N41.4 Trillion in a Year
In its bid to show growth in the banking sector, the total assets of the 27 deposit money banks rose by 10 percent, year-on-year to N41.4 trillion in the 12 months ending October 2019.
The growth however represents a slight decline when compared to 11 percent growth recorded in the 12 months ending October 2018.
The Central Bank of Nigeria (CBN) disclosed this in its November Economic report which revealed that total assets and liabilities of banks rose to N41.425 trillion as at October 31st 2019 from N37.338 trillion as at October 31st 2018, representing 10 percent growth.
According to reports, “Total assets and liabilities of commercial banks amounted to N41.4 trillion at end-October 2019, showing 4.6 per cent increase, compared with the level at the end of the preceding month. Funds were sourced, mainly, from increase in unclassified liabilities, and the mobilisation of time, savings and foreign currency deposits. The funds were used, mainly, to acquire unclassified assets, foreign assets and to boost reserves.
“Commercial banks’ credit to the domestic economy rose by 0.6 per cent to N22.3 trillion at end-October 2019, compared with the level at the end of the preceding month. The development was attributed to the rise in its claims on the private sector.
“Total specified liquid assets of banks stood at N14.3 trillion at end October 2019, representing 59.3 per cent of their total current liabilities. At that level, the liquidity ratio was 0.9 percentage point lower than the level at the end of the preceding month, and was 29.30 percentage points above the stipulated minimum liquidity ratio of 30.0 per cent.
Experts commend CBN for cutting lending rate to 13.5%
“The loan-to-deposit ratio, at 61.9 per cent, was 0.3 percentage point below the level at the end of the preceding month and was lower than the maximum ratio of 80.0 per cent by 18.10 percentage points.” The report added.
FCMB Records N135 Billion Earnings, N11 Billion Profit in Nine Months
FCMB Group Plc has announced a profit after tax of N10.791 billion for the nine months ended September 30, 2019, showing a marginal decline of 4.8 per cent compared with N11.341 billion recorded in the corresponding period of 2018.
According to the results released recently, showed gross earnings of N135.824 billion, up 2.2 per cent from N132.875 billion in 2018. Net interest income rose from N53.235 billion to N56.321 billion, while net fee and commission income fell from N15.459 billion to N15.307 billion in 2019. Net impairment losses fell by 46 per cent from N14.626 billion to N7.852 billion.
However, personnel expenses rose from N18.111 billion to N21.563 billion, just as general and administrative expenses increased from N21.857 billion to N23.439 billion, while other operating expenses grew from N12.267 billion to N13.387 billion.
Consequently, profit before tax fell from N14.767 billion in 2018 to N12.803 billion, while profit after tax stood at N10.791 billion compared with N11.341 billion in 2019.
The nine months performance indicates that FCMB Group has a significant ground to cover in the remaining quarter of 2019 to record higher bottom-line for the full year.The financial institution had posted a growth of 73 per cent in profit in 2019.
The Chairman of FCMB Group, Mr. Oladipupo Jadesimi, said: “In 2018, we continued to move forward on the path of good governance, strengthening and improving our corporate governance structure and bringing it into line with our long-term strategy and the highest international standards. This was in order to increase the confidence of our shareholders, investors and other stakeholders in an environment that is demanding even more transparency.”
Also speaking, the Group Chief Executive of FCMB Group Plc, Mr. Ladi Balogun, said: “The Commercial and Retail Banking Group (which includes First City Monument Bank Limited, Credit Direct Limited, FCMB (UK) Limited and FCMB Microfinance Bank Limited) grew its profit by 61 per cent, driven by improved performance in our consumer finance business and increase in fees and commissions.”
Safaricom post-IPO investor wealth rises to Sh1.3trn peak
Absa lending capacity boosted with $497m guarantee
$33m German bank cash to support 10,000 SMEs
Dangote Targets $30bn in Revenue in Two Years
Rolls-Royce announces highest annual sales of 5,152 cars in 2019
Paga names Cleverly as new Group CFO
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Hyundai plans to invest $87 billion into producing 44 new electric vehicles
- Safaricom post-IPO investor wealth rises to Sh1.3trn peak
- Absa lending capacity boosted with $497m guarantee
- $33m German bank cash to support 10,000 SMEs
- Dangote Targets $30bn in Revenue in Two Years
- Rolls-Royce announces highest annual sales of 5,152 cars in 2019
- Paga names Cleverly as new Group CFO
- ‘e-Cashier Processing 140 Billion Transactions’, Says Owolabi
- Hyundai plans to invest $87 billion into producing 44 new electric vehicles
- Completed e-payment transactions hit N203 trillion in 6 Months , says CBN
- NNPC Announces N13.23bn Surplus for October
- Paga Announces over $2 billion worth of transactions in 2019
- Dangote Sugar Refinery Revenue recovers but cost pressures remain
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