The agricultural sector is
dominated by oil palm producing companies, which are experiencing a
recovery in earnings growth after a period of slowdown. The earnings
prospects for the operators here usually change with changes in product
yields – which is a weather dependent factor. This tends to create an
unstable pattern of growth in revenue and profit.
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| …Yam tubers and yam plantation |
In reflection of the changing product yields and the unstable growth
in sales revenue, profit performance follows a random walk. Fiscal 2015
appears to be one of an upward step on revenue and a strong profit
growth following major gains in profit margin. The sector commands some
of the highest profit margins among listed companies, being locally
dependent and therefore shielded from exchange rate-induced cost
increases.
The sector is unable to satisfy product demand due to limited
operating capacity. Local output of palm products, for instance, meets
about one-third of total domestic demand. Importation has been
restricted under the Central Bank’s foreign exchange conservation
measures. This is expected to boost product prices and encourage
domestic capacity expansion. Such is however a long gestation programme,
which isn’t going to improve operating capacity in the short-term.
Okomu Oil
Okomu Oil has expanded its oil palm plantation in recent years as
well as processing facilities. Earnings figures have however been
declining over the past three years but an upturn is expected in 2015.
The company grew sales revenue by 12.3% year on-year at the end of the
third quarter to N7.75 billion and may achieve the first improvement in
turnover since 2012. It raised after tax profit by 36% to N2.20 billion
in the third quarter, which was already well above the full year profit figure of N1.55 billion in 2014.
The strong growth in profit is expected to be maintained to full year
and Okomu Oil Palm may end its three-year profit downslide in 2015 and
raise net profit to a three-year high. The strength in profit
performance in the year follows a gain in profit margin. Net profit
margin has risen from 17.9% at the end of preceding year to 28.4% at the
end of the third quarter of 2015. The company earned N2.31 per share at
the end of the third quarter, already above the N1.62 it reported in
the 2014 full year.
Presco
Presco maintained a strong earnings growth as per the interim reports
in 2015 with sales revenue growing and profit margin significantly
improved. This appears to set the company on the path of another strong
profit growth in 2015 after it nearly doubled profit in the prior year.
At the end of the third quarter, after tax profit was already standing
35% above the full year figure in 2014.
Sales revenue grew by 16.2% year-on-year to N8.04 billion in the
third quarter and is expected to stand at over N10 billion at the end of
the year. After tax profit grew more than three and half times as fast
as revenue to N3.52 billion at the end of the third quarter and is
estimated to grow by over 86% to N4.9 billion at the end of 2015.
The company operated with a significantly reduced cost-income ratio,
which lifted net profit margin from 32% in the same period last year to
44% at the end of the third quarter. The strength to grow profit margin
came from a drop of 16.6% in cost of sales against the increase of 16.2%
in sales revenue in the third quarter. This enabled the company to lift
gross profit margin from 42.2% in the same period last year to 58.5% at
the end of the third quarter and raise gross profit by 61% to N4.71
billion at the end of September.
By mike uzor
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