Palm oil takes shine off petroleum marketing on superior returns on investment

Quoted companies on the Nigeria Stock Exchange (NSE) whose primary business is the production and distribution of crude palm oil (CPO) are delivering superior returns on investment compared to their peer firms in petroleum marketing and distribution.

An analysis of the performance of palm oil producers listed on the Exchange comprising Okomu Plc and Presco Plc showed that both companies have delivered superior returns compared to their peers involved in petroleum marketing and distribution including Mobil Oil Plc, Forte oil , and Total Plc.

The development, according to market watchers, has raised hope on the successful diversification of Nigeria’s economy away from oil to include earnings from agriculture, manufacturing and sundry services industries.

The case is not just with bottom line, but also with top lines as listed palm oil producers are growing turnover even as their peers in petroleum products marketing struggle.

Total Plc’s first quarter 2017 results show that the company grew revenue by 35 percent from N59.71 billion to N80.46 billion (year-on-year). Mobil Nigeria Plc managed to grow revenue by 11 percent y-o-y, jacking up sales to N25.25 billion while revenue for Forte Oil was seven percent down in the same period.

The case was however different for Oando Plc which impressively grew turnover by 116 percent from N63.9billion to N138 billion y-o-y in the first quarter.

On the other hand, Palm oil majors, Okomu and Presco grew operating revenues by 77 percent and 125 percent respectively. Their successes were fuelled by government policy and the current economic regime, which has placed local producers in advantageous position as imports become difficult.

“The Central Banks of Nigeria’s proscription of foreign exchange access for palm oil imports changed sector dynamics as it provided a competitive edge in pricing for local producers over CPO importers,” analysts at ARM said in a note made available to Businessamlive.

Accordingly, the sector reported stronger revenues and higher margins in the period, which fuelled the positive price performance over 2016 and the first quarter of 2017.

Devaluation of the naira and high inflation rate also helped push the profit of local palm oil producers while the encumbrances imposed by low crude oil price made those who market crude oil derivatives struggle.
In the first quarter of 2017 results of Mobil showed that the company recorded over 78 percent drop in Profit After Tax (PAT), while Profit Before Tax (PBT) fell 15 percent y-o-y to N2.34 billion.

Total Nigeria Plc, faced the same predicament as its PAT declined by five percent y-o-y to N2.73billion. However, Oando was more fortunate as its PBT and PAT appreciated 207 percent and 58 percent respectively.

The palm oil producers fared better with Okomu Plc recording a 92 percent growth in PAT while Presco recorded 179 percent.

In the 2016 financial year, Okomu Plc grew basic EPS by 85 percent from N2.79 to N5.16 as Presco grew EPS by 1,000 percent. On the other hand Forte’s EPS dropped by 52 percent from N4.13 to N1.99. Even though Oando had an impressive top line, its EPS dropped 27percent y-o-y.

There are prospects that palm oil prices may continue to favour producers even in the international market. The hangover to Malaysian output from El Nino is not over yet.

Malaysia-based TA Securities Brokers forecasts that palm oil prices would “stay strong in the first half” of 2017, as plantation yields continue to be depressed by the knock-on effects of dryness blamed on the El Nino which lasted into early 2016.

“We would still see the impact of El Nino lingering”, TA Securities said in a note published on Agrimoney.com. The broker forecast that Malaysian palm oil output will “recover only in the April-to-June quarter of 2017 onwards.” But that may not significantly diminish the profitability of local producers in Nigeria.