PRESCO: Upward Revision to Price Target and Earnings

Proshare

Monday, July 04 2016 12:52PM /FBNQuest Research

Neutral rating maintained:
While Presco’s reported Q4 2015 loss before tax missed our estimate, its Q1 2016 sales and PBT beat our unrevised forecasts by 36.8% and 124.8% respectively. As such we are increasing our price target by 27.1% to N35.5 and our 2016-17E EPS forecasts by 20.3% on average. Consumer goods companies have been forced to source palm oil locally because fx scarcity has made imports dearer. Presco has been a beneficiary. Hence, unit volumes and price increased by 13% y/y and 3% y/y in 2015. Our new price target implies a potential downside of -4.2% from current levels because the shares have gained 12.1% ytd (vs 3.3% for the ASI). The shares are currently trading on a 2016E P/E multiple of 12.6x for a 17.3% EPS growth in 2017E. We retain our Neutral rating on the stock.

Q4 2015 sales up 9% y/y; Q1 2016 sales up 48% y/y:
Presco’s Q4 2015 results showed topline growth of 8.5% y/y to N2.4bn. The bottom line showed losses of –N610m and –N1.1bn on both PBT and PAT respectively. The fall in profits was as a result of a gross margin contraction of -5,587bps y/y to 80.1% and a -N1.2bn loss on biological assets revaluation. Income tax expense grew significantly to N593m from N27m in the prior year, worsening the loss after tax. Sequentially, sales declined by -28.4% q/q. 

The pre-tax and after-tax losses in Q4 compare with PBT and PAT of N3.3bn and N2.3bn in Q3 2015. For the full year results, sales of N10.4bn grew by 14.3% y/y while PBT and PAT declined by -46.7% y/y and -55.0% y/y to N4.2bn and N2.3bn respectively. Excluding the biological asset revaluation line, Q4 PBT grew by 35% y/y. On the other hand, FY 2015 PBT and PAT declined by -32% y/y and -33% y/y respectively. In Q1 2016, sales and PBT were up 47.8% y/y and 5.9% y/y while PAT came in flattish
.

Expansion plans still aggressive:
While Presco’s palm oil expansion plans remain aggressive, the company still has an eye on rubber although planting has not yet commenced. Its total land area increased by 18% to 16,650ha in 2015, out of which 92% is mature land. Besides the N4.6bn in loans (2015), additional funds are to be sourced from local banks and deployed to the plantation business and other capex needs in 2016. We have modeled sales and EPS growth of 28.5% y/y and 67.8% y/y in 2016E.

Related News:
1.
PRESCO Declares N1.39bn PAT in Q1 16 Result SP N35.70k
2.
PRESCO Records Pre-tax and after-tax losses of N610m and N1.1bn in Q4 15 Results
3.
PRESCO Declares 100kobo Final Dividend in 15 Audited Result SP N35.70k
4.
PRESCO records N3.5billion profit as revenue up by 16.23 in Q3 15
5.
PRESCO Cost savings trigger earnings revision
6.
PRESCO grows PAT by 9.6 as Turnover up by 15.4 in Q2 15 

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