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Presco Q1 2017 Results – Operating Expenses Up by 120% YoY

Proshare

Tuesday, May 02, 2017/ 10:52 AM / FBNQuest Research

Event: Presco reports Q1 2017 results
Implications
: Neutral to slightly positive market reaction expected
Positives
: Q1 2017 sales up 125% y/y, 90% q/q
Negatives
: Operating expenses up 120% y/y, 40% q/q


Late last week, Presco reported its Q1 2017 results. Similar to the prior quarter, sales grew remarkably, by 125.4% y/y to N7.2bn.

The company is still benefitting from favourable government policy as well as its over 50% increase to prices last year. Likewise, PBT grew markedly, by 180.0% y/y, to N5.0bn. 

The strong PBT growth was as a result of gross margin expansion of 1,685bps y/y to 79.8%, a 150.5% y/y rise in biological asset revaluation gains and a -43.7% y/y decline in net interest expense.  

The three factors offset the impact of a 120.1% y/y increase in operating expenses and an fx related loss of N191m. Further down the P&L, a 184.1% y/y increase in income tax expense culminated in a 178.9% y/y PAT growth to N3.9bn.  

On a sequential basis, sales grew by 89.8% q/q while PBT fell by -76.6% q/q. Although gross margin expanded significantly, the decline in PBT was mainly due to a fall in biological asset revaluation gains to N634m compared with N20.5bn in Q4 2016.

According to management, the larger figure in prior year was partly due to CPO price adjustment towards the end of the year.

In addition, operating expenses increased by 39.5% q/q while other operating income was -84.6% lower q/q. Due to the remarkable topline growth, sales were 81.0% ahead of our forecast while the positive surprise in PBT was more pronounced.

Furthermore, the annualised sales and PBT numbers are runing significantly ahead of consensus estimates of N21.2bn and N10.3bn respectively.


Looking ahead, the company plans to continue the expansion drive on its new plantation which it expects to contribute an additional 10,000ha for oil palm and 12,000ha for rubber in the long run. 

While rubber planting starts this year with no monetary impact on the P&L in the foreseeable future (due to its 7-year gestation period), Presco targets CPO production volumes of 14,000 metric tonnes (mt) in 2017 with an average yield of 16mt per fresh fruit brunch (FFB).  

Its estimated capex spend of N13bn will be funded through internally generated funds as well as bank borrowings.  

Year-to-date, Presco shares have gained 12.2% (vs -4.1% for NSEASI). We rate the stock Neutral. Our estimates are under review. 

Presco Q1 2017 results: actual vs. FBNQuest Research estimates (N millions)

 

Q1 2017

 

Actual

Y/y

Q/q

FBNQuest est.

Actual vs FBNQuest est. (%)

 

Sales

7,172

125.4%

89.8%

3,963

81.0%

 

Cost of sales

-1,447

22.8%

-0.8%

-1,415

2.3%

 

Gross profit

5,725

185.8%

146.8%

2,548

124.7%

 

-Gross margin

79.8%

1685bps

1843bps

64.3%

1553bps

 

Operating expenses

-1,049

120.1%

39.5%

-919

14.1%

 

Gain/Loss on bio. asst. revaluation.

634

150.5%

-96.9%

0

n/a

 

Other operating income

38

-84.1%

-84.6%

91

-58.7%

 

Operating profit

5,348

165.2%

-76.0%

1,720

210.9%

 

Net int. and similar charges

-124

-43.7%

-52.8%

-149

-17.0%

 

Exchange rate loss

-191

n/a

-62.5%

0

n/a

 

PBT

5,033

180.0%

-76.6%

1,571

220.3%

 

-PBT margin

70.2%

1368bps

-49912bps

39.6%

3053bps

 

Tax

-1,131

184.1%

-82.8%

-471

140.0%

 

Tax rate

-22.5%

-32bps

-5305bps

-30.0%

752bps

 

PAT

3,902

178.9%

-73.9%

1,100

254.8%

 

-PAT margin

54.4%

1042bps

-34085bps

27.8%

2665bps

 

Other comp. Income

0

n/a

n/a

0

0bps

 

PAT after comp. Income

3,902

178.9%

-73.9%

1,100

254.8%

 

Source: NSE, FBNQuest estimates

             

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