By Cordros Research
We update on OKOMUOIL following the 2018FY results and our recent discussion with management. After the unimpressive performance in 2018FY, we forecast EPS to grow by 2.3% in 2019 and 24.6% average over 2020-2021E, with a TP of N93.62/s (previously N91.57/s).
Our revised estimate is driven by both the resurgent price of CPO and the expected boost to volume from additional mature plantations coming on stream both in 2020 and 2021, which should offset persisting energy cost challenges.
CPO volume growth will be muted in 2019: We estimate that CPO volume grew by +22.1% in 2018, supported by higher production from oil mills (+8% y/y) as previous acreage areas replanted matured. With no new maturities expected until 2020E, we do not see CPO sales volume exceeding 2018 level in 2019.
Management, in our recent discussion, guided to flattish to marginal CPO volume growth in 2019. However, we look for strong volume growth in 2020 and 2021, with a further 4,500ha of mature plantation expected to come on stream from Extension II each year, according to management.
Overall, we estimate 46,036MTs will be achieved in 2019 (+1.3% y/y), and volume growth to average 19.7% over 2020-2023E.
Higher selling prices will support revenue: Elsewhere, the narrowing glut in the global CPO market (c. 2,464kMT vs. 4,562kMT in 2018) potentially bodes well for CPO prices in 2019.
Given that domestic CPO price tracks global price, we expect that higher international market prices will pass through to domestic prices.
To buttress, while unfavourable weather conditions are expected to weigh on global supply, demand resurgence in India – which accounts for 15% of global consumption – is expected to lift global demand.
By implication, we project mean CPO price to be 5% higher in 2019 vs. 2018.
On the contrary, however, we hold the view that persisting global stock accumulation will continue to weigh on rubber prices, thus limiting the scope for export sales for OKOMUOIL. Overall, we project +6.9% y/y revenue growth in 2019E and 28.8% average over 2020-2021E.
Albeit with limited pass through to gross margin: We revise our gross margin estimate for 2019E 36 bps lower to 73.1%, reflecting continued CoGS pressure. The company reported 74% y/y and 26% y/y expansion in Q4-18 and 2018FY CoGS respectively.
Management attributed the CoGs pressure in 2018 to energy supply challenges (as only 41% vs. target of 60%, of its energy requirements was supplied by BEDC1, with generator set supplying the balance) which (are not under its control and) have not been addressed.
Higher finance charges to cap pre-tax profits: With the one-year moratorium on the N1.95 billion concessionary loan from the Bank of Industry (BOI) ending last year, we expect interest payment to commence in 2019, potentially increasing finance charges by 83% y/y to N537 million, on our estimate.
Estimates and valuation: The net impact of our adjustment translates to growth in PBT and PAT of 5.2% y/y and 2.3% y/y respectively in 2019, and average EPS growth of 24.6% in 2020-2021E.
Our new TP of N93.6/s implies total upside of 21% after incorporating expected dividend yield of 4.0%.
OKOMUOIL currently trades at P/E and EV/EBITDA of 8.89x and 8.06x, significant discounts to its Middle East and Africa peer averages of 16.6x and 18.6x. We upgrade our recommendation to BUY, from HOLD.
How JumiaPay is Expanding Access to Unbanked Population
The innovative use of technology in the delivery of financial services is eliciting a positive impact on businesses and customers’ experience in Nigeria. Aside from providing a cheaper, faster and user-friendly financial option for Nigerians, fintech solutions are driving financial inclusion, employment creation.
With about 30% population of tech-savvy and smartphone-loving millennials, Nigeria is a huge market for fintech services. This generation of digital natives wants their financial transactions completed seamlessly. They crave prompt OTP and instant credit.
Felix Elugbadebo, a legal practitioner and technology enthusiast in Lagos fits into this description. Jumia fintech product avails him of the hassle of physical recharge cards for data and calls. “One aspect of technology (fintech), that I am very well interested in is a financial technology (fintech) which means being able to conduct financial transactions on your device be it mobile phones or on your computer. One of such fintech platforms is JumiaPay.
“I have been using JumiaPay since the name was Jumia One. I’ve been using it for airtime purchases, for data purchases and for other transactions that are available on the platform. Whether you live in the city or in rural areas, everybody wants an easy life. Nobody wants to run across the street to buy recharge cards or have to call an agent to buy data when you can actually do all that on your mobile device,” he said.
While many customers were caught in the usual itchy transaction net of the festive periods, Felix was getting incentives from his transactions on JumiaPay. He recounted that “over the Easter break, a lot of people could not use the USSD service provided by telcos and the banks but for people like me who use fintech platforms, we had no issues especially with JumiaPay when I get 3% discount off my purchases.”
The ability of fintechs like JumiaPay to deliver on customer timely needs is endearing them to the youthful market. For instance, the Jumia 2020 Q4 report, showed the company’s fintech product is making more inroads with more financial situations for customers. The report showed that Total Payment Volume JumiaPay increased by 30% from €45.6 million in the fourth quarter of 2019 to €59.3 million in the fourth quarter of 2020. JumiaPay Transactions increased by 10% from 2.4 million in the fourth quarter of 2019 to 2.7 million in the fourth quarter of 2020. Overall, 33.1% of Orders placed on the Jumia platform in the fourth quarter of 2020 were paid for using JumiaPay, compared to 29.5% in the fourth quarter of 2019.
With an estimated population of over 200 million of which 40% is financially excluded, it is expected that the increasing fintech traction will drive financial inclusion for the unbanked in Nigeria, while customers with bank accounts would achieve higher levels of customer satisfaction.
Unlisted Securities Market Closes Week 0.27% Higher
By Adedapo Adesanya
The week ended at the NASD Over-the-Counter (OTC) Securities Exchange in the positive territory as the bourse extended its recent bullish run on Friday, April 9.
Two of the bellwether stocks spurred the 0.27 per cent appreciation recorded at the unlisted securities market yesterday.
These equities were Niger Delta Exploration and Production (NDEP) Plc and VFD Group Plc and they both recorded heavy gains to raise both the market capitalisation higher and the market index to break its previous day year-to-date high.
They overpowered the loss recorded by FrieslandCampina WAMCO Nigeria Plc, which declined by N3.90 or 2.9 per cent to close at N127 per share from N130.90 per share.
VFD Group was the largest gainer at the session as it stocks appreciated by N27.18 or 10 per cent to sell at N299.02 per unit compared to N2711.84 per unit of the previous session.
On its part, NDEP Plc appreciated by N16.30 or 5.0 per cent to close at N340 per unit compared to the previous closing price of N323.70 per unit.
These gains lifted the NASD Unlisted Security Index (NSI) by 2.05 basis points to a new 2021 high of 755.84 points compared with the preceding day’s 753.79 points.
In the same breath, the market capitalisation added N1.46 billion to settle at N537.26 billion in contrast to N535.80 billion it finished at the Thursday session.
There was, however, a drop in the total volume of shares transacted at the final session of the week as it moved down by 17.4 per cent to 78,037 units from the previously quoted 94,500 units.
But there was a surge of 1,131.8 per cent in the value of the stocks transacted by market participants as a total of N22.6 million shares were traded compared with N1.8 million worth of shares exchanged a day earlier.
The total number of deals fell by 28.57 per cent as five deals were recorded as against seven deals at the previous session.
These deals were executed on the four companies with VFD Group Plc accounting for two deals, NDEP Plc, FrieslandCampina WAMCO Nigeria Plc and Central Securities Clearing Systems (CSCS) Plc accounting for one deal each.
UBN Property Plc closed as the most active stock by volume on a year-to-date basis for trading 21.9 million units valued at N24.6 billion. CSCS Plc trailed for transacting 8.3 million units worth N128.5 million, while Friesland held the third position with 3.5 million units worth N435.4 million.
In terms of the value on a year-to-date basis, NDEP Plc was the most active for transacting 2.2 million units valued at N694.4 million. Friesland trailed with 3.5 units of its securities valued at N433.4 million while VFD Group Plc has traded 1.2 million units worth N195.9 million.
Naira Trades Flat at Interbank, Black Market
By Adedapo Adesanya
The Nigerian Naira maintained its stability against the United States Dollar at the interbank and black market segments of the foreign exchange (FX) market on Friday.
Data obtained by Business Post from AbokiFX, a platform for tracking FX transactions at the unregulated window of the market, showed that the value of the Nigerian currency closed flat against its United States counterpart yesterday at N485/$1.
It was further observed that the domestic currency also traded flat against the British Pound Sterling at the same market window at N670/£1.
Britain is currently in a mourning mood as it lost the husband of Queen Elizabeth II, Prince Phillip, at the age of 99 on Friday. This news did not affect the value of the currency against the Naira in Nigeria yesterday.
Nigeria was colonised by the British and gained independence on October 1, 1960.
Back to the parallel market, the local currency depreciated against the Euro by N1 yesterday to sell for N574/€1 in contrast to N573/£1 it settled the day before.
At the interbank segment of the market, the Nigerian currency maintained its stability against the greenback as it closed at N379/$1.
However, at the Investors and Exporters (I&E) window of the FX market, the Naira sustained its growth against the American currency by appreciating by 0.16 per cent or 50 kobo.
At the close of transactions yesterday, the local currency settled at N409/$1 as against N409.65/$1 it finished on Thursday.
This happened as the value of trades reduced by $38.48 million or 41.1 per cent to $55.21 million from the preceding day’s $93.69 million.
Cryptocurrencies extend bullish run
Meanwhile, at the cryptocurrency market, the renewed confidence in the assets sustained the bullish outcome on Friday as the Bitcoin (BTC) gained 5.1 per cent to trade at N29,770,184.69.
Ethereum (ETH) appreciated by 5.9 per cent to sell at N1,067,485.92; Ripple (XRP) grew by 1.9 per cent to trade at N517.10; Dash (DASH) gained 5.2 per cent to sell at N134,000; Litecoin (LTC) improved by 2.3 per cent to quote at N112,996.39; while the United States Dollar Tether (USDT) appreciated by 0.2 per cent to sell for N495.15.
However, it was a bad day for the Tron (TRX) as its value went down by 2.5 per cent to sell at N60.14.
Market Gains N35bn as Financial Equities Enjoy More Patronage
By Dipo Olowookere
Transactions on the floor of the Nigerian Stock Exchange (NSE) closed bullish on Friday by 0.17 per cent on the back of more demand for financial equities.
While the banking sector appreciated by 0.41 per cent, the insurance index improved by 0.15 per cent, with the industrial goods space closing flat as the energy and consumer goods counters lost 0.33 per cent and 0.15 per cent respectively.
At the close of business, the All-Share Index (ASI) increased 66.56 points to 38,866.39 points from 38,799.83 points, while the market capitalisation rose by N35 billion to N20.335 trillion from N20.300 trillion.
During the session, the last for the week, investors exchanged 160.6 million stocks worth N1.3 billion in 3,507 deals compared with the 145.3 million shares worth N1.6 billion traded in 3,525 deals the previous day, indicating a 10.54 per cent rise in the trading volume, 18.72 per cent decline in the trading value and 0.51 per cent drop in the number of deals.
The most traded stock for the day was Mutual Benefits Assurance as it transacted 22.9 million units valued at N9.0 million and was trailed by Access Bank, which traded 18.8 million units worth N150.8 million.
Japaul sold 14.9 million equities valued at N8.6 million, GTBank exchanged 9.2 million stocks for N266.9 million, while Transcorp sold 8.3 million shares for N6.5 million.
Business Post reports that the market breadth closed at equilibrium yesterday with 14 price gainers and 14 price losers.
Honeywell Flour topped the gainers’ chart after its value rose by 8.85 per cent to N1.23, with Sovereign Trust Insurance rising by 8.70 per cent to 25 kobo.
Japaul gained 8.62 per cent to close at 63 kobo, Livestock Feeds appreciated by 7.22 per cent to N1.93, while FCMB went up by 6.57 per cent to N2.92.
On the losers’ table, Guinness Nigeria occupied the zenith position after its equity price went down by 10.00 per cent to trade at N29.70.
Unity Bank declined by 9.86 per cent to 64 kobo, ABC Transport dropped 9.09 per cent to 30 kobo, Mutual Benefits Assurance lost 7.14 per cent to end at 39 kobo, while UAC Property declined by 6.25 per cent to 75 kobo.
Oil Goes South as COVID-19 Concerns Weaken Optimism
By Adedapo Adesanya
Prices of oil went southwards on Friday as rising supplies from major producers and concerns over the current state of the COVID-19 pandemic continue to impact fuel demand.
The situation caused the value of the commodity to reach its worst weekly return in three weeks.
Yesterday, the Brent crude went down by 25 cents or 0.4 per cent to sell at $62.95 per barrel, while the West Texas Intermediate (WTI) crude lost 28 cents or 0.47 per cent to trade at $59.32 per barrel.
With the Organization of Petroleum Exporting Countries and its allies (OPEC+) planning to start raising output, markets are now focused on whether the demand recovery will be enough to absorb growing supplies.
Despite data showing an increase in consumption in major consuming countries like India and the US, rising virus cases and the possibility of stricter travel limits in Europe are depressing the forecast and putting pressure on crude.
Slow vaccination efforts are also compounding the problem as setbacks to get people to take vaccines is further extending the ease of restrictions globally.
Another factor that affected prices yesterday was the strengthening of the US Dollar in the currency exchange market. A stronger Dollar reduced the appeal of commodities priced in the currency. The stronger the greenback, the more expensive for holders of other currencies.
Analysts expect more problems as ongoing talks between Iran and world powers to renew a 2015 nuclear deal, which would set the stage for the Persian Gulf to increase supply continue to draw nearer. Negotiations are set to continue next week, though no direct contacts between Iranian and US envoys have yet been made.
Iran is currently not contributing much to the global markets but this could change soon with about 2 million barrels returning to the market if they succeed in reaching a compromise.
Both sides insist that the other one makes the first move: Iran wants the US to first lift sanctions before it stops enriching uranium, and the US wants Iran to first stop enriching uranium before it lifts the sanctions.
However, OPEC will have a problem on its hands, although it may not be as big as some would expect.
Iran is already exporting more oil than official numbers would suggest, mostly to China.
It could also affect US crude profits as Iran could start exporting to India after it stopped its purchases from Iran because of the US sanctions.
MTN to Borrow N200bn from Bond Sale, Clears N100bn Debt
By Dipo Olowookere
Telecommunications giant, MTN Nigeria Communications Plc, is considering approaching the local debt market to borrow N200 billion.
The firm with the highest mobile phone subscribers in the country said the funds would be obtained through the sale of bonds.
The company has already secured the approval of the Securities and Exchange Commission (SEC) to launch a N200 billion bond issuance programme.
It stated that this route is being followed because it aligns with its strategy of diversifying its funding sources.
Recall that last month, MTN Nigeria sold commercial papers worth N100 billion to investors and the proceeds were used to finance the company’s working capital and general corporate activities.
The CP was sold in Series III and IV and followed the initial sale of N100 billion a few months earlier under Series I and II.
The company confirmed that those who bought the first two tranches of the papers have been repaid with their interests.
“The company confirms that the series I and series II CP issuances of the aggregate value of N100 billion have been redeemed,” a part of a statement issued by MTN Nigeria disclosed.
MTN Nigeria further said subscriptions for the series III and series IV of the CP have been completed, adding that it raised a total of N73.5 billion from the exercise, which opened on Thursday, March 11, 2021, and closed on Friday, March 19, 2021.
Business Post gathered that N19.8 billion was raised from the series III and it cleared at 6.77 per cent, while N53.7 billion was raised from the series IV, clearing at 7.56 per cent.
MTN Nigeria said its desire to explore the different sources of raising funds inspired the option of issuing the N200 billion worth of corporate bonds to investors.
It stated that it was in the process of selling the first tranche of the debt instrument, which will carry a 7-year maturity, with the rate to be determined by the “prevailing market conditions.”
The blockchain brings new financing options to the business market. For example, Bitcoin Cash casino has adapted to only using cryptocurrency. This way, it makes it easier for their customers to deposit and withdraw in a BCH casino. Entrepreneurs have taken note of this and are looking to invest more in crypto than in fiat markets.
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