Economy
Nigerian Palm Oil Sector: Waxing Stronger Under Policy Cover
By ARM Securities
In contrast to the macro-induced sell-offs across the broad equities market in 2016, palm oil producers had a stellar year as the policy changes in response to the FX pressures handed the sector a lifeline.
Specifically, CBN’s proscription of FX access for palm oil imports changed sector dynamics as it provided a competitive edge in pricing for local producers over CPO importers.
Accordingly, the sector reported stronger revenues and higher margins in the period which fuelled the positive price performance over 2016 (vs NSEASI: -6%). In this report, we outline our views regarding the drivers of 2016 performance and set out our views ahead of FY 16E earnings releases.
In the aftermath of CBN policy pronouncement regarding CPO imports, domestic prices surged 144 percent over 2016 to N661.4/kg as importers who account for 29% of local supply cutback on imports.
While the upsurge in CPO prices drove sector revenue to a record high of N22.8 billion, its impact was more pronounced on operating margin (+12pps YoY to 53%) as the largely domestic sourcing of raw materials and labour kept cost (COGS and OPEX) in check.
Another positive policy handout for the sector was CBN’s renewed supply of concessionary loans, which given already weak naira outlook drove coverage companies to change the currency character of their debt.
FCY borrowings as a share of total debt shrank 5pps YoY to 13.8% while total borrowing cost contracted 7% YoY over the review period.
Overall, reflecting robust top-line gains and financial efficiency, we estimate that core earnings should climb 108% YoY to a record high of N8.1 billion in FY 16.
That said, despite our strong view on earnings, we expect dividend payout ratio to come below trend levels as management of coverage companies guides to capacity expansion plans from retained earnings.
We project Presco’s 2016E DPS of N2.02 to be higher than that of its domestic peer, Okomu (N1.77).
Notwithstanding strong YTD price performance, we believe current pricing is yet to fully reflect the stellar earnings performance reported so far, but more importantly, the robust earnings outlook. Particularly, at 9.1x, the sector’s mean P/E remains cheap relative to trend (3 year: 11.4x, 5 year: 11.3x) and Bloomberg Africa peers (10.1x). Across our coverage, we prefer Presco due to its larger oil palm plantation (2015 mature area hectares of 10,949 vs. 8,671 for Okomu) and homogenous product mix, which makes it a greater beneficiary of improved conditions in the domestic CPO market.
Accordingly, our FVE embodies a 46 percent upside from current pricing for Presco (N68.84) relative to 40 percent for Okomu (N67.43) and we have a BUY rating for both companies.
Full report here: https://secure.arm.com.ng/research/EquityReports/Nigerian%20Palm%20Oil%20Sector%20-%20Waxing%20strong%20under%20policy%20cover.pdf
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By Adedapo Adesanya
Okitipupa Plc was the sole price gainer at the NASD Over-the-Counter (OTC) Securities Exchange on Friday, August 7, lifting the trading platform by 0.44 per cent at the close of transactions.
The share price of the palm oil producer appreciated during the trading session by N25.00 or 9.0 per cent to N277.00 per unit compared with the previous day’s N252.00 per unit.
As a result, the market capitalisation gained N12.29 billion to close at N2,807 trillion, in contrast to the previous session’s N2.795 trillion, while the NASD Security Index (NSI) added 93.63 points to finish at 4,678.08 points compared with Thursday’s 4,657.59 points.
The bourse recorded a price loser yesterday, and this was Mass Telecoms Innovation Plc, which crashed by 3 Kobo or 9.4 per cent to settle at 32 Kobo per share versus the previous day’s 35 Kobo per share.
The volume of securities traded by investors plunged by 81.5 per cent to 535,7560 units from 2.9 million units, the value of securities slumped by 93.9 per cent to N6.0 million from N99.2 million, and the number of deals decreased by 41.9 per cent to 36 deals from 62 deals.
Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units transacted for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 77.0 million units exchanged for N5.5 billion.
GNI Plc also ended the day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, trailed by Infracredit Plc with 2.3 billion units valued at N6.5 billion, and Resourcery Plc with 1.1 billion units sold for N415.7 million.
By Dipo Olowookere
A 0.15 per cent growth was achieved by the Nigerian Exchange (NGX) Limited, driven by continued buying interest in banking stocks such as First Holdco and others.
The banking index was up by 1.53 per cent during the session, offsetting the losses recorded by the others. The industrial goods segment fell by 0.37 per cent, the insurance counter shrank by 0.21 per cent, and the energy sector contracted by 0.04 per cent, while the consumer goods space closed flat.
At the close of business, the All-Share Index (ASI) moved up by 364.26 points to 245,573.60 points from 245,209.34 points, and the market capitalisation increased by N235 billion to N158.513 trillion from N158.278 trillion.
Despite the gains printed by Customs Street during the trading day, investor sentiment was weak, as there were 22 price gainers and 24 price losers, indicating a negative market breadth index.
UPDC surged by 9.23 per cent to N3.55, CWG soared by 6.56 per cent to N19.50, AXA Mansard appreciated by 4.80 per cent to N13.10, Neimeth advanced by 4.24 per cent to N8.60, and Cutix improved by 4.00 per cent to N2.60.
Conversely, Red Star Express lost 10.00 per cent to trade at N18.00, CAP declined by 9.98 per cent to N115.45, John Holt shrank by 9.82 per cent to N10.10, ABC Transport depreciated by 9.57 per cent to N5.20, and Legend Internet crashed by 8.70 per cent to N4.20.
A total of 1.5 billion equities worth N26.7 billion exchanged hands in 42,580 deals on Friday versus the 531.8 million equities valued at N20.5 billion traded in 44,826 deals on Thursday, representing a spike in the trading volume, value, and number of deals by 182.06 per cent, 30.24 per cent, and 5.01 per cent, respectively.
The busiest stock during the session was Fortis Global Insurance, with a turnover of 824.5 million units valued at N2.1 billion, FCMB traded 217.9 million units worth N2.8 billion, Access Holdings exchanged 176.2 million units for N4.7 billion, Chams sold 32.5 million units worth N132.1 million, and First Holdco transacted 25.0 million units valued at N3.7 billion.
By Adedapo Adesanya
The Naira further closed south against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, August 7, by 81 Kobo or 0.06 per cent to N1,365.69/$1 from N1,364.88/$1.
It was a similar situation for the Nigerian Naira in the official market during the session as against the Pound Sterling; it lost N1.08 to quote at N1,839.17 versus the previous day’s N1,838.09/£1, and against the Euro, it slipped by N1.23 to close at N1,575.73/€1, in contrast to the preceding session’s N1,574.80/€1.
Further, at the GTBank forex counter, the Nigerian currency weakened against the Dollar yesterday by N2 to settle at N1,371/$1 compared with Thursday’s N1,369/$1, and at the black market, it traded flat at N1,400/$1.
The country’s legal tender came under FX demand pressure on Friday, with turnover rising by 304.3 per cent to $399.5 million from $98.8 million the previous day, with the number of deals slightly up to 107 from 106.
Next week, traders expect the Naira to hold steady, buoyed by dollar sales by the Central Bank of Nigeria (CBN), whose presence in the market could help ease demand pressure.
As for the cryptocurrency market, Bitcoin (BTC) neared the $65,000-mark after it gained 0.8 per cent to trade at $64,968.05, as investors took advantage of recent drops to shore up their holdings.
Previously, the decision by the US Senate to delay a vote on the Crypto Clarity Act until at least September weakened the outlook. The bill, which would set out which US regulator oversees which digital assets, needs 60 votes to pass and it is unclear whether it currently has 50.
Solana (SOL) grew by 2.5 per cent to $74.81, Dogecoin (DOGE) rose by 1.3 per cent to $0.0702, Binance Coin (BNB) jumped by 1.1 per cent to $593.80, Ethereum (ETH) expanded by 0.5 per cent to $1,916.08, Ripple (XRP) also soared by 0.5 per cent to $1.03, and TRON (TRX) appreciated by 0.2 per cent to $0.3275.
However, Cardano (ADA) depreciated by 1.0 per cent to $0.1997, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
