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Okomu Oil Q4 2018 and Q1 2019 Results Review: Up Against Strong Headwinds in 2019

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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

Auditing

Bidvest Bank trading profit rises 3.5% to R6.7bn

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The Commercial bank in the Republic of South Africa trading, distribution and services group Bidvest said recently its trading profit for the year ended June 30 rose 3.5 percent to R6.7 billion despite flat revenue.

Headline earnings per share were up 9.8 percent to 1,352.1 cents and the company said exceptional cost and capital discipline as well as improved margins were highlights against a volatile trading backdrop.

The CEO Bidvest Bank Lindsay Ralphs said, “There has been a strong focus on our clients, on solutions, innovation, wholesaling the right product at the appropriate price point as well as bolt-on acquisitions in the services and office & print divisions, which has culminated in acceptable growth.”

The group declared a final cash dividend of 318 cents per share, bringing the total dividend for the year to 600 cents, up 7.9 percent from last year.

Strong profitability gains were achieved at Adcock Ingram while Comair recognised the successful claim awarded against South African Airways, which increased Bidvest’s share of profits from these associated companies.

Bidvest said its diverse portfolio of businesses and extensive reach allowed it to weather challenging times.

“Our basic-need services and everyday essential product ranges enable us to support and add value to all our stakeholders. Innovation to disrupt ourselves, and the industries in which we operate, remains a core focus alongside disciplined asset management and cost control,” Ralphs added.

 

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Guinness Nigeria Declares N5.5bn Profit, N3.3bn Dividend

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A leading beverage alcohol firm in Nigeria Guinness Nigeria, recently announced a profit after tax (PAT) of N5.483 billion for the year ended June 30, 2019, compared with N6.718 billion. The profit was actualized from a revenue of N131.498 billion as against N142.975 billion in 2018.

Net financing income fell from N3.443 billion to N1.862 billion, while profit before tax (PBT) was N7.103 billion, down from N9.943 billion in 2018. The board of directors has recommended a dividend of N3.329 billion.

Commenting on the result, the Managing Director, Guinness Nigeria Plc, Mr. Baker Magunda, stated that the company would continue to work on all operating indices while expecting that the micro and macroeconomic parameters improve.

Magunda mentioned that: “Revenue for the year declined 8% compared to same period last year on the backdrop of an extremely challenging macroeconomic and competitive environment. The cost of the increase in excise duty at a time of stagnant consumer disposable income had to be absorbed by industry players. Despite the tough competitive landscape, we continue to see good growth performance from Guinness, Spirits and the malt drinks.”

According to him, a combination of factors, inflation plus prior year royalties and accruals not approved by NOTAP, led to a 17 per cent decline in gross profit for the organisation.

Magunda explained that “Marketing spend reduction by 16 per cent and distribution costs initiatives partly mitigated the gross profit decline, thus leading to a fall in operating profit by N4.4 billion. Profit before tax decreased by N2.8 billion as a 46 per cent reduction in net finance costs further helped to cushion the decline in operating profit,”

Also speaking on the performance, Chairman of the company, Mr. Babatunde Savage, said: “As a board, we are confident that our strategy is sound, and that we are making the right investments in the company to ensure our long-term competitiveness. The Board will continue to support the management in its efforts to build a business that aims to consistently deliver growth for stakeholders.”

The company noted that despite the challenges, it continues to fulfill its commitment to stakeholders particularly as it drives its renewable energy and water recovery project for sustainable environment.

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Zenith Bank grows profit to N111.7bn, in H1’19

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Nigeria’s leading financial service Zenith Bank Plc has announced profit before tax (PBT) of N111.7billion and proposed interim dividend of 30 kobo per share for the half-year ended June 2019 (H1’19).

This was disclosed by the bank in its audited financial results for H1’19 released recently which showed improved performance in key financial indicators.

In a statement announcing the results, the bank said: “Gross earnings grew by three percent from ¦ 322.2 billion to ¦ 331.6 billion driven by a significant growth of 24 percent (YoY) in non-interest income from ¦ 88.6 billion in H1 2018 to ¦ 109.7 billion in H1 2019.”

It further said: “In particular, fees from electronic products increased by ¦ 17 billion (168 percent) from ¦ 10 billion in H1 2018 to ¦ 27 billion in H1 2019, demonstrating significant progress in our retail banking initiatives.”

“This top-line growth filtered through to the bottom-line as Profit Before Tax (PBT) increased to¦ 111.7 billion reflecting a four percent growth over ¦ 107.4 billion reported in H1 2018 with earnings per share (EPS) increasing by nine percent to ¦ 2.83 in H1 2019 from ¦ 2.60 compared to the prior period.” It added.

 

 

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