Wednesday, May 11, 2016 10:18AM/FBNQuest Research
Event: Presco reports Q4 2015 results
Implications: Mixed market reaction likely
Positives: Q4 2015 sales up 8.5% y/y; FY 2015 sales up 14.3% y/y
Negatives: Pre-tax and after-tax losses of –N610m and -N1.1bn respectively reported in Q4 2015
Presco reported its Q4 2015 results yesterday, showing 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. Further down the P&L, 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.
Moving on to 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. Restatement of the prior year’s result by the company resulted in a significant upward review to biological assets gains (around N4.4bn) and contributed to the y/y decline in profits.
Back to the FY 2015 results, the y/y fall in PBT was due to gross margin contraction of -148bps y/y to 63.5%, an -81.6% y/y decline in biological assets revaluation gains as well as a 95% y/y rise in net interest expense. Total loans amounting to N4.6bn were sourced from a combination of local banks and the CBN, in order to fund its rubber expansion programme and other capex needs. A higher effective tax rate of 44.9% (vs 34.3% in 2014) culminated in a 55% y/y decline in PAT to N2.3bn
If we exclude the biological asset revaluation line (which has been volatile historically) from the results, Q4 PBT grew by 35% y/y while PAT declined by -88% y/y. On the other hand, FY 2015 PBT and PAT declined by -32% y/y and -33% y/y respectively. Compared with our forecasts, Q4 sales and PBT (ex-biological assets) were in line while underlying PAT missed by -88%.
Similarly, FY sales and underlying PBT were in line with our forecasts but underlying PAT missed by -10%. Presco's FY sales were slightly behind consensus sales forecast of N10.5bn. Its PBT and PAT were ahead of consensus by 26% and 5% respectively. Proposed dividend of N1.00 implies a yield of 2.8%.
Palm oil prices gained 1.5% in Q4 but declined by -22.1% in 2015. We suspect that the decline in global prices as well as Presco’s aggressive planting supported topline growth during the year. The company’s total land area increased by 18% to 16,650ha while mature palm trees increased by 46% to 15,356ha in 2015.
We will however seek further clarification management on why gross margin contracted y/y in Q4, given its upward trend during the year. It averaged 58% as at 9M 2015. The stock has gained +8.2% ytd, outperforming the NSE ASI and competitor, Okomu Oil, by 18.6% and 12.4% respectively. At current levels, Presco trades on a 2015 P/E multiple of 15.6x for a 2016 EPS growth of 9.5%. We expect a mixed reaction from the market.
We rate the stock Neutral. Our estimates are under review.
Presco Q4 2015 results (N millions)