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Wednesday, March 29, 2023

Okomu, Presco Capex Investments to Underpin Future Growth

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Nigeria oil palm producers Okomu Oil and Presco have undertaken capital investments which is set to underpin the growth of both firms into the next few years.

“We remain optimistic about the future of the Palm oil industry in Nigeria as the key players continue to invest aggressively in capacity expansion,” said Oluwashina Akinremi, a United Capital Research Analyst.

“For Okomu Oil, we expect the c.9,000 hectares of mature plantation from its extension II to support growth. Also, Presco expansion of its existing Palm Oil mill from 60 tons/hour to a 90 tons/hour milling plant by year-end 2020, construction of a new 60 ton/hour Palm Oil mill in Sokoban estate which is to be completed in 2023, and expansion of the company’s palm kernel oil plant to 350 ton/day PKO plant (current capacity: 60 ton/day) will support their topline growth.”

Akinremi sees opportunity for investors to buy either of the two stocks as their valuation multiples trade at a discount (Okomu 10.6x earnings, Presco 9.36x) to African and Middle Eastern peers (Average of 38.89x).

Palm oil is of strategic importance as it is used in the production of more than half of the products sold in supermarkets globally.

Nigeria remains the top palm oil producer in Africa based on the data by USDA. However, despite Nigeria being the largest producer of palm oil in Africa, Cote’Divoire remains the largest exporter of the commodity, with Nigeria settled at the sixth position on the list of palm oil exporting countries in Africa.

The Federal Government’s policies such as; 35 percent levy on imported palm oil, import ban on refined oil, the exclusion of palm oil and related products from sourcing dollars from the official FX market and the border closure since August 2019, have been supportive for the oil palm sector.

The continuous importance of Crude Palm Oil (CPO) for food, biofuel and cosmetics purposes has led to uptick in its demand universally.

Palm oil remains the cheapest and most edible vegetable oil globally. The oil palm tree produces 4.95 ton of edible oil per hectare (ha), six times more than the rapeseed tree, the next highest.

In addition to its use as cooking oil, it is also used in the manufacture of soaps and detergents, cosmetics, pharmaceuticals, biscuits, biodiesel among others.

United Capital has a buy rating on Presco with a target price of N81.5 per share and a buy on Okomu with a target of N86 per share.

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