Okomu Oil records 85% PAT growth

…As net finance charges grew by over 1,000% Q4

Okomu oil Plc in its 2016 audited financial result for the period ended 31 December consolidate growth strategy as key performance indices soared, even as net finance charges rose by 1,000 per cent.

The company’s fourth quarter and 2016 financial year results result released by the Nigerian Stock Exchange recently showed that sales, profit before tax and profit after tax performed remarkably both on Q4 and financial year basis.

Okomu Oil Q4 2016 results showed that sales grew by 74 per cent y/y to N3.5billion. Profit before tax (PBT) rose by 132 per cent y/y to N797 million, while Profit after tax advanced by 62 per cent y/y to N735m.

The fourth quarter result of the company showed that even as finance costs rose by over 1,000 per cent y/y, occasioned by a N1.0billion foreign exchange loss, and lower operating expense, the firm posted strong year sales growth and a 4,315bp y/y gross margin expansion, culminating to 132 per cent y/y Q4 increase in PBT.

Meanwhile, due to rise by 227bp y/y in the tax charge, Okomu Oil PAT growth in Q4 was milder. On a sequential basis, sales were up modestly q/q. However, PBT declined by -34 per cent q/q, mainly due to a 707 per cent q/q rise in net finance costs and a -4,950 points in the quarter (q/q) contraction in gross margins.

Cross section of Analysts noted that Okomu traditionally reports frail gross margins in Q4 relative to other quarters, apparently related to accounting adjustments.

However, FBNQuest analysts hailed the Q4 result as better than its own estimates on sales and PBT “Compared with our estimates, Q4 sales and PBT were ahead by 57 per cent and 23 per cent respectively”.

However, looking at the result on 2016 financial year basis, the company’s sales grew by 48 per cent during the year to N14.4billion. PBT and PAT progressed by larger margins of 104 per cent and 85 per cent to N5.9billion and N4.9bilion.

The growth posted in both PBT and PAT were spurred by strong sales growth, and a 1,019bp gross margin expansion during the year. The positives indices hedged adverse effect of increases of 25 per cent increase in operating expenses and 172 per cent rise in net finance costs respectively.

The sloppier y/y growth on the PAT line was on the back of an 862 points expansion in tax rate.

A breakdown of the revenue figure shows that palm oil sales grew by 75% y/y to N2.7bn during the quarter while rubber sales grew by 69% to N771m. The rubber business accounted for 15% of Okomu’s sales as at end-Dec 2016 vs 40% in 2011.

Analysts hinged the company’s strong sales in the palm oil business to strong expansion plans embarked on as well as promising pricing. This was hinged on the premise that the company showed that average sales price for crude palm oil grew by 55 per cent in the year under review compared to the preceding year.

It is also believed that weaker competition from imports due to foreign exchange deflation may have enhanced earnings and topline.