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Presco Q4 2016 Results - Operating Expenses Up by 48% YoY

Proshare

Tuesday, April 18, 2017/2:27 PM/FBNQuest Research

Event: Presco reports Q4 2016 results
Implications: Neutral to slightly positive market reaction expected
Positives: Q4 2016 sales up 57%
Negatives: Operating expenses up 48% y/y; gross margin contraction of -1,873bps y/y to 61.4% 

Presco reported its Q4 2016 results this morning showing sales growth of 57.2% y/y to N3.8bn. PBT and PAT of N21.5bn and N14.9bn compare with pre-tax and post-tax losses of –N610m and –N1.2bn respectively recorded in Q4 2015.

The strong earnings were driven by biological assets revaluation gain of N20.5bn recorded in Q4 2016. Excluding the biological assets revaluation gain, PBT would be around N1.0bn. Although sales growth was strong, a gross margin contraction of -1,873bps y/y to 61.4% and opex growth of 48.2% y/y weighed on earnings.

To a lesser extent, net finance growth of 107% y/y also contributed. Sequentially, sales were down -14.5% q/q (Q4 is usually one of the weaker quarters for palm oil companies due to seasonality) while PBT and PAT advanced by around 290% q/q on average.

Similar to the y/y trend, gross margin contracted by -466bps q/q while opex and net finance costs advanced by 177% q/q and 119% q/q respectively and weighed on the bottom line.  

On a full year basis, sales of N15.7bn were up 50.4% y/y. PBT and PAT of N31.2bn and N21.7bn were up by 641% y/y and 772% y/y respectively. In addition to the strong sales growth, gross margin expanded by 847bps y/y to 72.0%. A 46.6% y/y opex growth weighed on earnings. 

Compared with our estimates, Q4 sales were ahead by 26% while PBT was in line (excluding biological asset revaluation gains).  

Presco has declared a dividend of N1.50 compared with consensus estimate of N1.45. The DPS implies a yield of 3%. The stock has gained +17.2% this year and has underperformed the broad index which has shed -5.1% ytd. At current levels, Presco trades on a 2017 P/E multiple of 8.1x for EPS growth of 14.8% in 2018E.

We expect the market reaction to be neutral to slightly positive given that the full year underlying performance was slightly ahead (by 7%) of consensus estimates.


We rate the stock Neutral. Our estimates are under review. 

Presco Q4 2016 results: actual vs. FBNQuest Research estimates (N millions)

 

 

Q4 2016

FY 2016

 

Actual

Y/y

Q/q

FBNQuest est.

Actual vs FBNQuest est. (%)

Actual

Y/y

FBNQuest est.

Actual vs FBNQuest est. (%)

Sales

3,779

57.2%

-14.5%

3,008

25.6%

15,716

50.4%

14,945

5.2%

Cost of sales

-1,459

205.3%

-2.8%

-716

103.9%

-4,405

15.5%

-3,662

20.3%

Gross profit

2,320

20.4%

-20.5%

2,292

1.2%

11,311

70.5%

11,284

0.2%

-gross margin

61.4%

-1873bps

-466ps

76.2%

-1481bps

72.0%

847bps

75.5%

-353bps

Operating expenses

-2,195

48.2%

177.0%

-1,329

65.2%

-4,603

46.6%

-3,736

23.2%

Gain/Loss on bio. asst. revaluatn.

20,471

n/a

445.8%

0

n/a

24,879

2242.2%

4,409

464.3%

Other operating income

245

1.6%

709.1%

286

-14.5%

323

-11.4%

365

-11.4%

Operating profit

20,840

n/a

252.8%

1,249

1568.1%

31,911

548.3%

12,320

159.0%

Int. and similar chgs

-262

107.4%

119.2%

-151

73.8%

-685

-3.3%

-573

19.4%

Exchange gains (loss)

934

n/a

n/a

0

n/a

0

n/a

-934

n/a

PBT

21,512

n/a

285.0%

1,099

1858.0%

31,226

640.9%

10,813

188.8%

-PBT margin

569.3%

59466bps

44284bps

36.5%

53276bps

198.7%

15835bps

72.4%

12634bps

Tax

-6,577

1008.8%

265.3%

-330

1895.4%

-9,491

451.4%

-3,244

192.6%

Tax rate

30.6%

12785bps

-164bps

30.0%

57bps

30.4%

-1044bps

30.0%

39bps

PAT

14,935

n/a

294.3%

769

1842.0%

21,735

771.7%

7,569

187.2%

-PAT margin

395.2%

44529bps

30953bps

25.6%

36968bps

138.3%

11443bps

50.6%

8765bps

Other comp. Income

29

-67.2%

n/a

0

n/a

29

82.7%

0

n/a

PAT after comp. Income

14,964

n/a

295.1%

769

1845.8%

21,764

767.3%

7,569

187.5%

                     

 

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4.      Presco s OPEX Up by 134 YoY in Q2 16 Results Shares Outperform the ASI

5.      PRESCO Upward Revision to Price Target and Earnings

6.      PRESCO Declares N1.39bn PAT in Q1 16 Result SP N35.70k

7.   PRESCO Records Pre-tax and after-tax losses of N610m and N1.1bn in Q4 15 Results

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