Agriculture is the main point of national transformation agenda. It’s also a major rallying point at the stock market. Okomu Oil Palm Plc and Presco Plc are the two dominant stocks in the agriculture sector. With market capitalisation of about N72 billion, the two stocks account for some 90 per cent of total market capitalisation of the five stocks listed under the agriculture sector. With hectares of palm oil plantations, they represented the vast agriculture potential of Nigeria. Both Okomu Oil Palm and Presco are integrated agricultural companies with oil palm plantations, palm oil mills, crushing plants and oil refining plants. They engage in cultivation of oil palm and extraction and refining of palm oil into finished products. They are major suppliers of specialty fats and oils to several large and medium companies. Besides similarity of business operations, the two companies shared several similarities including the location of their farms in Edo State and substantial foreign shareholdings. They are also companies of nearly the same size and run the same business year.
Okomu Oil Palm, the older and the larger of the two companies, was incorporated in 1979 and listed its shares on the Nigerian Stock Exchange (NSE) in 1991, the same year Presco was incorporated. Okomu Oil Palm opened yesterday with a market capitalisation of N46.26 billion, nearly twice the market value of Presco Plc, which opened at N25.38 billion. Besides, Okomu Oil Palm has a larger balance sheet; including total assets and net assets.
Presco became a public limited liability company and listed its shares on the NSE in 2002. With total assets of N28 billion and net assets of N17.1 billion, Presco still boasts of substantial capacity in the largely small-sized operations that dominate the agriculture sector.
But though they share several similarities, latest fundamentals of Presco and Okomu Oil appear to be illustrating the proverbial rain that showers on sugarcane and bitter leaves farms. While the audited reports for 2011 had shown striking fundamental similarities with all key indices of the two agricultural stocks jumping to new highs, latest audited reports and accounts for the year ended December 31, 2012 show striking fundamental dissimilarities.
From turnover to profit and returns, Presco extracted itself as the better of the two companies, and with sustained growths, assumed the leadership of the industry in terms of turnover and profitability. Both actual and underlying profit and loss measures placed Presco ahead with its real operational profit twice that of Okomu Oil. Okomu Oil failed to sustain its growth momentum as decline in sales coloured the bottom-line negative. With the bumper harvest in 2012, Presco now outpaces competition in all key averages, setting long stride that will require equally jumpy growth by the competing stocks to catch up.
Sales Generation
Okomu Oil Palm could not sustain its previous jumpy sales growth as sales revenue dropped by 8.8 per cent in 2012 as against impressive growth of 82.7 per cent. Average sales growth in the past two years thus stood at 36.95 per cent. The top-line performance in 2012 was the poorest in recent years. It had increased sales by 52 per cent in 2010.
Presco grew its turnover by nearly a third, sustaining year-on-year impressive growth in sales that had seen the top-line expanding annually by an average of 45 per cent in recent years. Presco’s gross incomes rose by 32 per cent in 2012 compared with increase of 58.5 per cent and 35 per cent in 2011 and 2010 .
Profitability
Both actual and underlying profitability indices of the companies showed the same colouration as the top-line. Presco consolidated its profitability and leveraged on higher sales and increasingly efficient cost management to displace Okomu Oil Palm as the highest-profitable agric stock. Okomu Oil Palm’s actual pre and post tax profits dropped marginally, although the underlying profit-making capacity remained steadied.
Presco was clearly in better grip of cost management and profitability. Gross profit doubled by 107 per cent in 2012 as against increase of 84 per cent in 2011. Profit before tax leapt by 229.8 per cent in 2012, consolidating 93 per cent recorded in 2011. After taxes, net profit jumped by 378 per cent in 2012 as against 55 per cent in 2011.
On the other hand, Okomu Oil Palm recorded a decline of 6.7 per cent in profit before tax, a reversal from impressive growth of 136 per cent recorded in 2011. Net profit after tax also reversed with a negative of 8.5 per cent in 2012 as against growth of 141 per cent in 2011.
On the average, Presco significantly outperformed its competitor with average pre-tax profit growth of 162 per cent as against Okomu Oil Palm’s 65 per cent. Presco’s average net profit growth in recent years stood at 216 per cent compared with 66 per cent recorded by Okomu Oil Palm.
Besides, there was significant improvement in the profit-making capacity of Presco compared with almost flat position of its peer. Presco’s gross profit margin improved from 47.5 per cent in 2011 to 74.3 per cent in 2012, indicating average margin of about 61 per cent. Pre-tax profit margin also more than doubled from 32 per cent to about 80 per cent, representing average pre-tax profit margin of about 56 per cent. Okomu Oil Palm’s average profit margin has steadied at 42.35 per cent in recent years, hovering between 41.9 per cent in 2011 and 42.8 per cent in 2012.
Actual Returns
Returns to shareholders and other stakeholders also showed similar patterns to profit and sale trends. While Presco improved underlying returns considerably, Okomu Oil Palm’s returns dwindled to their recent lows. Presco returned 32 per cent on average assets in 2012 as against 10.9 per cent in 2011, indicating average return on total assets of 21.5 per cent over the years. Return on equity-to shareholders who provided the equity funds, also improved from 9.6 per cent to 50 per cent. This indicates average return on equity of about 30 per cent.
Okomu Oil Palm’s returns generally fell below average in 2012 with average returns of 14 per cent and 14.1 per cent on total assets and equity funds respectively. Returns on total assets and equity funds had stood at 20 per cent and 21 per cent respectively in 2011. Average returns on assets and equity thus stood at about 17 per cent and 17.4 per cent.
The Bottom-line
There is no doubt about the immediate, medium and future prospects of the agriculture sector. In spite of the pervasive influence of crude oil on national income, agriculture remains the dominant sector of the Nigerian economy. With estimated land area of 910,768 square kilometres out of a total area of 923,768 square kilometres, Nigeria is largely an agrarian economy with agriculture the largest sector and biggest employer. Nigeria’s arable land use stands at more than 33 per cent. From the North to the South, from West to East, Nigeria’s climate and terrain are suitable to cultivation and breeding. Notable agriculture produce across the regions include Cocoa, Peanuts, Palm oil, Corn, Rice, Millet, Cassava, Sorghum, Yams, Rubber, Cattle Sheep, Goats, Timber, Fish among others.
Over the years, agriculture has shown considerable resilience and it has increasingly become a major catalyst for Nigeria’s growing Gross Domestic Products (GDP). Government’s fiscal policy measures aimed at encouraging domestic agricultural companies also appeared to be impacting positively on the sector. The Federal Government has granted several incentives to agriculture sector including a zero duty on agricultural machinery and equipment with effect from January 31, 2012. Besides, many agricultural companies had benefitted from financial incentives from the Central Bank of Nigeria (CBN), which helped to reduce financial leverage and pressure on the bottom-line. More than before, there is a strong linkage between the central government and the private agric operators, which enabled Nigerian farmers to make input and directly benefit from government’s policies.
The performance of Presco and Okomu Oil reflected the differing potential of each operator, although the macroeconomic environment generally remains positive. The difference appears to lie in the growth and investment plans of the companies. Presco has maintained a meticulous investment programme which included planting and replanting of new and existing plantations and expansion of processing capacity.
