FSDH Initial Reaction: Okomu Oil FY22 results
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February 1, 2023/FSDH Research

Key Performance Highlights:

• On January 30, Okomu Oil published its FY22 numbers with a robust operating performance. Revenue grew 58.4% YoY to N59.2 billion in FY22. The revenue growth was primarily driven by a 68.9% YoY increase in local sales (91% of FY22 sales), slightly offset by a 1.2% YoY decline in exports (9% of FY22 sales).
   
• Cost of Sales jumped 69.8% YoY to N19.8 billion in FY22, resulting in a 224 bps YoY contraction in Gross Margin to 66.6% in FY22. The cost of sales rose sharply due to a 74.0% YoY increase in rubber cost (16% of the FY22 cost of sales), while palm oil cost (84% of the FY22 cost of sales) soared 69.0% YoY to N16.5 billion in FY22. The company continues to face elevated cost pressures in 2022 as well, with Net operating expenses surging 60.5% YoY to N14.4 billion in FY22. We think the surge in operating expenses reflects the high inflationary environment in the economy. Consequently, the operating profit grew 49.4% YoY to N25.0 billion in FY22.
   
• The company reported a net finance cost of N2.1 billion in 2022 from N623 million in FY21, primarily due to an increased interest on the long-term loan that jumped 2.35x to N1.5 billion in FY22. Okomu oil paid an effective tax rate of 24.4% in FY22 versus 28.4% in FY21, resulting in a net profit of N17.3 billion in FY22, against N11.5 billion a year back. Okomu reported an earning per share of N18.17 compared to N12.10 last year. The company’s EBITDA and operating margins contracted by 393 bps and 255 bps YoY in FY22.
   
• Looking at the quarterly performance, the company recorded a solid 42.8% YoY rise in revenue to N9.0 billion in 4Q22. However, Revenue performance in 4Q22 on a sequential basis was sub-par, with revenue declining 3.8% QoQ. The company’s cost of sales was down 36.6% YoY to N5.4 billion in 4Q22 (but up 14.1% on a sequential basis). With significantly higher net operating expenses, Okomu reported an operating loss of N97 million in 4Q22. Moreover, as the net finance cost driven by interest on long-term loans soared in 4Q22, the company recorded a net loss of N714 million in 4Q22 versus a net loss of N65 million in 4Q21.

Market Reaction: The Okomu stock closed unchanged at N181.10, versus a 0.15% gain for the All Share Index (31/1).

Okomu Oil Earnings Highlight FY22