Oil Palm producers stocks may be value plays

One of the best performers among firms quoted on the floor of the bourse, Oil Palm producers in recent times have recorded strong margins, higher returns on investment, and strong sales amid a harsh operating and macroeconomic environment.

The aforementioned performance means these firms have outperformed the bench mark All Share Index (ASI).

With an aggressive expansion plan with a view to increasing their share of the market and a ramp up in production capacities, these proactive strategic moves have earned Okomu Oil and Presco Plc, the largest producers of the palm oil, a buy rating by analysts at investment houses including BMI.

For the first nine months through September 2015, Presco’s Earnings Before Interest and Tax and Amortization (EBITA) spiked by 86.50 percent to N6.66 billion while  net income surged 98.31 percent to N6.80 billion.

The company’s EBITA margins increased to 55.82 percent in September 2016 from 44.02 percent the previous year.

Net margins moved to 57 percent as against 42.66 percent last year, thanks to gains on biological assets and a reduction in foreign exchange loss.

The company plans to increase oil-palm plantation to 31,400 hectares by 2021 from 16,900 while it targets to raise palm-oil mills capacity to 120 tons per hour from 60 tons.

With a strong patronage from manufacturers like PZ Cussons Plc, Dangote Industries Ltd. and May & Baker Nigeria Plc, and the ban on CPO imports at the interbank market, shareholders should expect that Presco will deliver a return higher than its cost of capital.

Okomu Oil, a major player in the industry, had third quarter EBITA surge by 83.30 percent to N5.33 billion while net income spiked by 89.50 percent to N4.17 billion.

The company’s EBITA margins increased to 48.55 percent in 2016 from 36.90 percent the previous year.

Net margins moved to 38.22 percent in 2016 from 28.38 percent last year on the back of an aggressive expansion in oil palm plantation.

Valuation

Presco’s share price closed at N43.85 as of 1:30 pm on the floor of the exchange.
Year to date, Presco shares have gained +32.88 percent, significantly outperforming the NSE ASI which has declined -4.1 percent.

Based on Bloomberg estimates, the company’s shares are trading on a current P/E of 7.83x (vs c.30x for the consumer goods names).

Okomu share price close at N47 while the stock has gained +55.12 percent ytd, compared with -4.10 percent ytd for the NSE ASI, Okomu  trades on a P/E multiple of 9.71x.

 

BALA AUGIE