MARKET DEVELOPMENT
‘Okomu Oil Reaping Benefits of Cutting Cost’
‘Okomu Oil Reaping Benefits of Cutting Cost’
05/09/2014 (THISDAY Live) - The half 2014 results recently released by Okomu Oil Palm Company Plc showed that the company is reaping the benefits of its ongoing cost curtailment program, a report has stated.
A Lagos-based investment firm, CSL Stockbrokers Limited stated this in a report obtained yesterday.
The company had reported sales of N4.9 billion for the half year 2014, representing a marginal year-on-year increase by 0.8 per cent, compared to the N4.830 billion it stood in the comparable period of 2013. Its earnings before interest and tax (EBIT) also climbed to N1.801 billion in the period under review, as againstthe N1.478 billion last year, just as its profit before tax improved to N1.730 billion as at half year 2014, from N1.428 billion last year.
This, however, was in line with analysts’ expectations.
But the report noted that the outlook for sales growth in the second half of 2014 remains tepid on the back of softening crude palm oil (CPO) prices, which it said fell in the first half of 2014.
“Nevertheless, the company appears to be reaping the benefits of its ongoing cost curtailment program as EBIT was up by 22 per cent year-on-year in the first half of the year on the back of a significant reduction in both cost of sales (-37 per cent year-on-year) and selling and distribution expenses (-91 per cent year-on-year),” it stated.
It attributed the growth in sales to the seasonality palm oil sales as the second quarter coincided with the end of peak production season of palm oil.
Furthermore, Okomu’s half year 2014 balance sheet showed that net inventory declined by 20.8 per cent quarter-on-quarter from to N1.7 billion as at the end of the first half of the year.
With regards to cost management, Okomu said it is targeting a reduction in its energy costs.
These cost savings were partially responsible for the increase in profit before tax margins to 36 per cent in the first half of 2014, from 30 per cent in the comparable period of 2013.
The report however maintained a ‘Buy’ rating on Okomu’s stock as well as a price target of N41.5 per share.
“Our price target is derived using a 75 per cent: 25 per cent combination of discounted cash flow and comparable spot multiple valuation methodologies.
“We are of the view that sales in the rubber division (c.37 per centof sales) weakened in the period,” it added.
Data from the International Monetary Fund had shown that average rubber price declined by 28 per cent year-on-year in the first half of 2014. After two consecutive years of decline, the international price of CPO began to recover at the start of the year, but fell back again in May.
In Nigeria, a parallel market for CPO tends to thrive when the international price of CPO is low
A Lagos-based investment firm, CSL Stockbrokers Limited stated this in a report obtained yesterday.
The company had reported sales of N4.9 billion for the half year 2014, representing a marginal year-on-year increase by 0.8 per cent, compared to the N4.830 billion it stood in the comparable period of 2013. Its earnings before interest and tax (EBIT) also climbed to N1.801 billion in the period under review, as againstthe N1.478 billion last year, just as its profit before tax improved to N1.730 billion as at half year 2014, from N1.428 billion last year.
This, however, was in line with analysts’ expectations.
But the report noted that the outlook for sales growth in the second half of 2014 remains tepid on the back of softening crude palm oil (CPO) prices, which it said fell in the first half of 2014.
“Nevertheless, the company appears to be reaping the benefits of its ongoing cost curtailment program as EBIT was up by 22 per cent year-on-year in the first half of the year on the back of a significant reduction in both cost of sales (-37 per cent year-on-year) and selling and distribution expenses (-91 per cent year-on-year),” it stated.
It attributed the growth in sales to the seasonality palm oil sales as the second quarter coincided with the end of peak production season of palm oil.
Furthermore, Okomu’s half year 2014 balance sheet showed that net inventory declined by 20.8 per cent quarter-on-quarter from to N1.7 billion as at the end of the first half of the year.
With regards to cost management, Okomu said it is targeting a reduction in its energy costs.
These cost savings were partially responsible for the increase in profit before tax margins to 36 per cent in the first half of 2014, from 30 per cent in the comparable period of 2013.
The report however maintained a ‘Buy’ rating on Okomu’s stock as well as a price target of N41.5 per share.
“Our price target is derived using a 75 per cent: 25 per cent combination of discounted cash flow and comparable spot multiple valuation methodologies.
“We are of the view that sales in the rubber division (c.37 per centof sales) weakened in the period,” it added.
Data from the International Monetary Fund had shown that average rubber price declined by 28 per cent year-on-year in the first half of 2014. After two consecutive years of decline, the international price of CPO began to recover at the start of the year, but fell back again in May.
In Nigeria, a parallel market for CPO tends to thrive when the international price of CPO is low