The 2016 financial year was quite the profitable one for Okomu Oil Palm Company Plc. Not only was it able to grow revenue and earn more income during the course of the year, it was also able to maintain the growth momentum to its bottom line.
Both pre and after tax profits were significantly higher than those of the prior year, and this had a bettering effect on profitability ratios. Because earnings per share for the year was significantly higher than that of the prior year, shareholders also got to enjoy a higher dividend.
While the stock is a great asset for shareholders, it will however be difficult for new investors to buy into the company as its stock is currently high priced, and overvalued as well.
The company earned significantly more revenue in 2016 than it did in 2015, just like it made more revenue in 2015 than it did in 2014. Revenue for the year was N14.4 billion, 48.5 per cent more than the N9.7 billion recorded in 2015.
The level of pretax profit grew over that of the prior year, swelling to an all-time high of N5.9 billion, a whopping 103.4 per cent more than the N2.9 billion recorded in 2015. It also recorded an 81.5 per cent growth in after tax profit during the course of the year, with the after tax profit growing to N4.9 billion.
Earnings per share (EPS) was thus predictably higher than that of the prior year. At 515 kobo, the EPS was 84.6 per cent higher than the 279 kobo recorded before. Dividend per share (DPS) also was better and stood at 150 kobo by year end 2016.
Because of higher revenue and profit profiles for the year, profitability ratios were a vast improvement over that of the prior year. For the year, it recorded a profit margin of 41.0 per cent, higher than 29.9 per cent in 2015. Analysis shows that for every N100 earned by the company in the course of the year, it recorded a profit of N41.00, much higher than a profit of N29.90 in the preceding year. The result was also much better than what most other manufacturing companies recorded for the same period.
The company also performed better in 2016 than it did in 2015 in terms of return on assets (ROA) and return on equity (ROE). ROA for the year was 24.1 per cent, up from 14.5 per cent in the prior year, and was much higher than the manufacturing industry average for 2016. ROE followed the same pattern, growing to 28.8 per cent in 2016 from 22.3 per cent in 2015. This was equally higher than what most other companies recorded for 2016.
Earnings per employee improved to N27.63 million on the average, up from N18.03 million in 2015. This is indicative of employee productivity and company efficiency.
Not only did Okomu have a higher capital adequacy in 2016 than it did in the prior year, the result also overshot industry standards for the period under review. At 79.1 percent, and higher than the 68.8 per cent result recorded in the prior year, the company’s result is still high and suggests that its financial strength in the future is solid.
As per the liquidity position of the company, it is now better able to convert assets into needed funds very quickly, recording a current ratio of 1.97 times in 2016, higher than an already high 1.17 times in the preceding year. This suggests efficiency of the company’s operating cycle and its ability to turn its products into cash. The company had a debt to equity ratio of 0.44, and this shows that the company is using 44 kobo of liabilities in addition to each N1.00 of stockholders equity. In other words, the company is using N1.44 of total capital for every N1.00 of equity capital.
Okomu recorded a profit margin of 41.0 per cent during the course of the year, as compared to 29.9 per cent in the prior year. This means that every N100 worth of turnover made a profit of N41.00, as compared to N29.90 in the prior year. The profit margin was one of the higher ones in the manufacturing industry for the review period.
For the review year, the company retained 71 per cent of its profit, down from 96 per cent in the prior year. With a profit margin of 41.0 per cent, a retention ratio of 0.71, an asset turnover of 0.59 times and an asset to equity ratio of 1.44, the company had a sustainable rate of 24.6 per cent. This means that using only the resources it generated, the company had the capacity to grow by 24.6 per cent during the course of the year. It however grew faster, as indicated by its actual growth of 48.5 per cent.
Our analysis determines that it the Okomu stock is overvalued. Currently trading at a share price of N69.09 (as at August 25 2017), nets assets per share is a much lower N17.83, and this is much lower than the value of the current market price. This is a clear indication of overvaluation. Secondly, the book value to market value ratio is much lower than one, another clear indication of overvaluation. While book value is N17 billion, the market value is a much higher N65.84 billion. It is obvious that the company is worth much less in reality than the price it is currently trading at. This also indicates overvaluation.
Okomu Oil Palm was established in 1976 as a Federal Government pilot project aimed at rehabilitating of palm production in Nigeria. At inception, the pilot project covered a surveyed area of 15,580 hectares of which 12,500 hectares could be planted with oil palm trees. It was incorporated in 1979 as a limited liability company and began infrastructural developments on the estate ten years later.
The growth of the Okomu Oil Palm Company has been a great success and a huge encouragement for the Nigerian agricultural sector, with profound positive consequences of socio-economic growth for the region where it is located. It is also now an emerging leader in rubber production.
Our analysis shows that the Okomu stock in one that pays dividend, so it is an ideal stock for the investor who is interested in a regular dividend income.
*Source: Okomu’s 2016 financial report
*Okomu’s 2017 half year unaudited results
*The Nigerian Stock Exchange