Tuesday, November 17,  2020 / 6:18 PM / United Capital Research /Header Image Credit: Nikkei Asian Review

Overview

Much ado about Palm oil?

Palm oil is of strategic importance as it is used inthe production of more than half of the products sold in supermarkets globally.The continuous importance of Crude Palm Oil (CPO) for food, biofuel andcosmetics purposes has led to uptick in its demand universally. Palm oilremains the cheapest and most edible vegetable oil globally. The oil palm treeproduces 4.95 ton of edible oil per hectare (ha), six times more than therapeseed tree, the next highest.

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

Outlook

We remain optimistic about the future of the Palm oilindustry in Nigeria as the key player continues to invest aggressively incapacity expansion. For OKOMUOIL, we expect the c.9,000 hectares of matureplantation from its extension II to support growth.

Also, PRESCO expansion of its existing Palm Oil millfrom 60 ton/hour to a 90 ton/hour milling plant by year-end 2020, constructionof a new 60 ton/hour Palm Oil mill in Sokoban estate which is to be completedin 2023, and expansion of the company's palm kernel oil plant to 350 ton/dayPKO plant (current capacity: 60 ton/day) will support their topline growth.

Despite the recent rally in the stock market, webelieve that the key tickers in the Palm oil industry offer an opportunity forinvestors to position. To further buttress our stand, valuation multiples ofNigerian players trade at a discount to African and Middle Eastern peers

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