Nigeria’s top oil palm firms’ shareholders see higher gain

Shareholders who invested in Okomu oil and Presco will see higher returns in 2024 than they did in the previous year driven by profitability.

Presco’s shareholders will see the most gain, with 217 percent growth year-on-year, while Okomu oil shareholders will see 61.9 percent growth.

Okomu Oil’s earnings per share grew to N35.93 per share from N22.19 per share while Presco’s earnings per share rose to N10.43 per share from N3.29 per share.

Earnings per share(EPS) is a financial ratio dividing net earnings available to common shareholders by the average outstanding share over a certain period. The EPS formula indicates a company’s ability to produce net profits for shareholders.

Earnings per share measures a business’s profitability per share. Investors and analysts use it as an indicator of a business’s financial performance. The higher the EPS, the more profit is associated with each share and the more valuable the share is seen to be.

EPS is useful for investors and analysts when they’re comparing the investment potential of different businesses. A high EPS indicates a business is profitable, potentially leading to higher dividends and a stronger share price.

For shareholders, EPS can influence their perception of a share’s value and growth in a business’s EPS can boost demand for a business’s shares, leading to a higher share price.

The palm oil sector has always presented a beacon for investors due to the seemingly wide gap between the demand for the product and the supply, which has not been met.

The two major oil companies which are Okomu Oil and Presco have been operating within this unmet demand and appear to have weathered the challenging 2024 macroeconomic economic headwinds that have affected many companies, judging by their performances.

These two agro-based companies were able to weather the storm of inflation and Naira devaluation to record the highest after-tax profit in a decade where Presco recorded 4088.7 percent growth and Okomu oil recorded 1188.3 percent growth from 2015.

In favorable market conditions where demand exceeds supply, leading to supply shortages, the investment case becomes appealing. The Nigerian palm oil sector has consistently faced this gap, supposedly, making it an attractive investment opportunity.

While the Nigerian palm oil industry is experiencing a boom due to increased investment, demand, and market activity, Henry Olatunoye, former national president of the National Palm Produce Association of Nigeria (NPPAN), highlighted a concerning trend.

According to data from the United States Department of Agriculture Service (USDA), Nigeria’s oil palm production surged to 1.5 million tons in the 2023/2024 market year, up from 1.4 million tons in the 2022/2023 market year.

“We expect Okomu to achieve CPO volume growth in the near term, primarily driven by a higher extraction rate and improved Fresh Fruit Bunch (FFB) yields from existing mature oil palm trees,” Cadinalstone analysts said in its Oil Palm sector update report.

It said the company has no arable land available for new planting and management has confirmed no plans for expansion in the foreseeable future, as all existing trees, particularly in Ext 2, have reached maturity.

“Presco is set to continue benefiting from its inorganic expansion strategy. With the recent acquisition of Ghana Oil Palm Development Company, the company’s total land area has expanded by 21,000 hectares. Additionally, its processing capacity, which includes a 60-metric-ton-per-hour oil mill, is expected to further support CPO output,” analysts at CardinalStone said.

“Presco has announced the acquisition of arms where they can expand production while Okomu has also been expanding but their strategy has been more focused on optimising the asset they have to ramp up efficiency in terms of oil mills and this has been supporting them,” Kayode Eseyin, lead consumer goods and agriculture analyst at Cardinalstone said in an interview on Arise News.

Okomu oil’s share price stood at N521.5 as of March 20 from N444 at the beginning of the year which indicates 17.5 percent y-t-d growth.

Likewise, Presco plc’s share price stood at N740 as of March 20 from N475 at the beginning of the year, indicating 55.8 percent y-t-d growth.

In 2024, general expenses for Okomu oil increased by 76.5 percent, while Presco saw a 58.1 percent increase. Despite these rising costs, these two firms recorded the highest after-tax profit in a decade.

Okomu Oil’s after-tax profit grew to N34.3 billion in 2024 from N21.2 billion in 2023 while Presco’s after-tax profit grew to N104.3 billion from N32.9 billion.

Presco’s revenue surged to N198.2 billion from N102.4 billion during the reviewed period. Sales in Nigeria stood at N179.2 billion while sales in Ghana stood at N18.9 billion.

Okomu oil’s revenue surged to N130.1 billion from N74.9 billion during the reviewed period. Local sales stood at N107.5 billion from N67.04 billion while export sales grew to N22.5 billion from N7.95 billion.

Nigeria’s palm oil industry remains highly fragmented, with smallholder farmers contributing approximately 80 percent of total production, according to Cardinalstone analysts.

They cited that however, their dependence on traditional, labor-intensive methods has led to low yields and inconsistent quality, hindering the sector’s ability to scale and fully exploit market opportunities.

“This structural challenge is likely to persist in the near term, limiting output growth,” it said.

Cardinalstone analysts anticipate a modest increase in production in 2025, stating that a modest increase in production is anticipated driven by listed players who contribute less than 10 percent of supply benefiting from higher extraction rates and improved Fresh Fruit Bunch yields at Okomu, alongside Presco’s inorganic expansion efforts.

They also noted that the moderation of inflation in 2025 is expected to alleviate cost pressures, which both companies have managed effectively so far, helping them retain their profitability margins.

CardinalStone also estimated that Presco’s crude palm oil output would reach 53,612 tons in 2025, reflecting a significant 72.6 percent year-on-year increase, while Okomu Oil is expected to produce 79,997 tons in 2025.

Tags: palm oil, Nigeria, demand, share, Okomu, Presco, shareholders, Production, yields