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Okomu Oil Palm Company Plc is taking advantage of the opportunities in Nigeria’s agri-business value chain that is responsible for the company’s consistent earnings growth in the last five years.
The Edo-state-based company with principal activities in oil palm plantation, palm kernel processing, and development of rubber plantation has the second strongest profit margin among the most capitalised and liquid entities.
Its profit after tax (PAT) surged by 917 percent to N10.011 billion as at March 2023 from N1.06 billion in 2019; the year on year increases in 2023 were 7.16 percent.
Of course, the surge in the 2019/2020 financial year was simply because the palm oil producer benefited from the blacklisting of some 41 items including oil palm by the Central Bank of Nigeria in 2016 when dollar shortage fostered local demand for the agro-product.
Also, the border closure contributed to the robust earnings a few years ago as the policy was able to fend off competitors who were smuggling the product into the Nigerian market and creating a glut as Okomu Oil and few local producers became the sole producers of the products.
However, the reopening of the borders by the newly elected president Bola Tinubu and his market friendly policies are a downside risk to local palm oil makers that will be exposed to stiff competition and cannibalisation of sales from foreign companies who a lot tines smuggles in the product across the borders.
Already, Okomu is experiencing or seeing a slow growth in revenue while expenses are growing faster than an uptick in sales as evidenced in deteriorating profit margin.
Gross profit margin fell to 81.86 percent in 2023 from 85.88 percent as at March 2022.
Operating profit margin reduced to 62.52 percent in the period under review from 66.88 percent the previous year.
Net profit margin increased to 41.79 percent in the period under review from 46.37 percent as at March 2022.
It appears investors have shrugged away the negative prognosis and deteriorating margins as they continue to swoop in the company’s shares.
Okomu Oil shares have gained 43.27 percent so far this year, which outperforms the NGXASI index’s 17.04 percent.
Nigeria’s Palm Oil industry, which was a revenue spinner for the country in the 60s before the discovery of crude oil in commercial quantities, is still in its embryonic stage and it is in dire need of funding and transformation policies.
Nigeria was in the 1960’s the world’s largest palm oil producer with a global market share of 43 percent.
According to the United States Department of Agriculture (USDA), Nigeria is the 5th largest producer of crude palm oil (CPO) with less than 2 percent of total global market production of 74.08 million MT, in 1966 Malaysia and Indonesia surpassed Nigeria as the world’s largest palm oil producer.
Since then, both countries combined produce approximately 80% of total global output, with Indonesia alone responsible for over half i.e. 53.3% of global output.