Presco Plc Q2 2018 Results - Lower CPO Prices Submerge Earnings


Tuesday, June 31, 2018 /4:05PM/ARM Research

Yesterday, Presco Plc (Presco) released its Q2 2018 result wherein earnings declined 16% YoY to N1.39 billion, translating to an EPS of N1.39. This represents its second consecutive plunge in earnings as cumulative PAT in H1 2018 dipped 28.2% YoY to N3.99 billion.

Further breakdown reveals that the company recorded revenue contraction of 10.4% to N5.1 billion largely driven by falling prices with FEWSNET reporting a 11% QoQ deceleration in refined CPO prices. This is in consonance with plunging global CPO prices—an off shoot of widening surplus in the global CPO market. Elsewhere, with cost of sales (-24.1% YoY to N1.3 billion) falling faster than revenue (-10.4% YoY), gross margin expanded 460bps to 74.6% while gross profit dipped 4.5% YoY to N3.8 billion.

Despite the contraction in gross profit, Presco’s EBIT for the quarter grew slightly by 2.7% YoY to N2.6 billion following a 7.5% YoY slump in operating expenses on account of fall in Administrative expenses (-10.5% YoY) and sizable jump in other operating income (Q2 18: N169.4 million vs N31.4 million in Q1 18).

Elsewhere, Presco continues to encounter pressures on its finance expense line (+68% YoY to N313.2 million) owing to higher short-term borrowings (+15% YoY to N9.9 billion) as at Q2 2018.

Overall, the blend of contracting revenues (Q2 2018: -10.4% YoY) and finance expense burden led the company to report weaker PAT which plunged 16% to N1.4 billion in Q2 2018. Presco trades at a current P/E of 10.8x versus 8.0x for main peer Okomu. Our estimate is under review.

More analysis to follow.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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