Agric firms’ earnings soar on higher palm oil prices

NIGERIA – Two major agriculture firms operating in Nigeria’s oil palm sector which are quoted on the Nigerian Stock Exchange (NSE) have recorded the strongest growth in six quarters, as second-quarter 2014 earnings spiked on increased price of palm oil at the international market, BusinessDay analysis shows.

The cumulative revenue of the two dominant players in the sector, Okomu Oil Nigeria plc and Presco Nigeria, increased by 2 percent to N8.93 billion for Q2 2014, from N8.75 billion, while profit increased by 13.45 percent to N4.51 billion.

This compares with a 29-percent decrease in revenues and 18-percent decline in profit in 2013, stoked by 12-percent decline in palm oil prices and 17-percent dip in rubber prices in the period.

Profit margin, a measure of efficiency and profitability of a firm, jumped to 50.50 percent for both firms in 2014, from 33.08 percent in 2013.

“The global prices for palm oil increased by around 7 percent in Q1 which impacted positively on Q2 sales,” said Olajumoke Okeowo, equity research analyst at FBN Capital, in a recent report.

Nigeria’s real GDP growth strengthened to 5.5 percent in 2013 from 4.2 percent in 2012, according to revised estimates by the National Bureau of Statistics (NBS).

Agriculture made up 23 percent of the economy, according to NBS data.

The sector also suffered slow growth last year due to a glut in the market occasioned by increased supply from Indonesia and Malaysia.

Some analysts say importation of the product is expedient, as local consumption outstrips production.

“Production deficit remains high at about 600,000 tonnes per annum,” said Uche Nzeka, agricultural marketing specialist, United Sates Directorate of Agriculture, in a note released recently.

“As a result, the country imports palm oil to satisfy local demand,” he said.

Output in Nigeria’s palm oil sector is revving up as PZ Cussons plc announced last month that its joint venture (JV) palm-oil processing refinery with Singapore’s Wilmar International Ltd was operating at near full capacity.

PZ said it expects the venture to gross at least $300 million (N48.3 billion) annually within three years after construction.

Presco, Nigeria largest farmer by market value, has completed plans to launch a new biogas power plant in order reduce its dependence on fossil fuels to boost its operation in the country.

Nigeria, Africa’s leading crude producer and most-populous nation, ranks behind Malaysia and Indonesia as the world’s largest oil palm producer, according to the Food and Agriculture Organisation (FAO).

Nigeria’s palm oil production volume to land area ratio of 0.3 tonnes per hectare (te/ha) compares with Malaysia’s 3.6te/ha and Indonesia’s 3.0te/ha, while on a per-capita basis consumption at 8kg is below the global average of 21kg.

“In Q2, global prices declined by around 8 percent. We therefore envisage this decline will feed into local prices and weigh on Q3 sales,” said Okeowo.

Presco’s share price has retreated -3.9 percent this year, while Okomu is down -17.11 percent as investors wait to see if gains in prices are sustainable.

August 14, 2014; http://businessdayonline.com/2014/08/agric-firms-earnings-soar-on-higher-palm-oil-prices/#.U-w8LqOjKVo

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