Presco's OPEX Up by 134% YoY in Q2'16 Results; Shares Outperform the ASI


Friday, July 29, 2016 4:01pm/ FBNQuest Research

Event: Presco reports Q2 2016 results

Implications: Positive reaction from the market likely

Positives: Q2 2016 sales up 71% y/y, 36% q/q; PBT up 233% y/y, 30% q/q

Negatives: Opex up 134% y/y, 139% q/q

Presco reported its Q2 2016 results this morning. Sales grew by 71% y/y to N4.3bn; PBT and PAT also grew by 233% y/y to N2.3bn and 154% y/y to N1.6bn respectively. The PBT growth was supported by a 1,301bp expansion in gross margin to 63.6%, a 2,152% y/y increase in gains on biological asset revaluation to N405m and a 613% increase in other operating income to N389m.

These positives completely offset a 134% y/y increase in opex and exchange losses combined. Although income tax expense increased significantly to N716m from N65m in the prior year, PAT still grew 154% y/y to N1.6bn. On a q/q basis, sales grew by 36% q/q while PBT and PAT grew by 30% q/q and 15% q/q respectively.

Moving on to the half year results, sales of N7.5bn grew by 61% y/y; PBT and PAT both grew by 165% y/y and 153% y/y to N4.1bn and N3.0bn respectively. The drivers were similar to the q/q trends - gross margin expansion of 711bps to 63.3% y/y and biological asset revaluation gains increased 578% y/y to N658m while other operating income grew  by 645% y/y to N626m.

The PAT growth was lowered by a 339bps y/y rise in tax rate to 27.0%. The underlying results (ex-biological asset revaluation gains) show that Q2 PBT grew by 175.1% y/y while PAT grew by 90.5% y/y. Compared with our estimates, Q2 sales were ahead by 33%, while PBT and PAT ( both ex-biological assets revaluation gains) came in ahead by 78% and 60% respectively.

Aside from the fact that Presco continued to expand its plantations to increase volumes, the company also enjoyed increased demand for palm oil from local consumer goods companies which have been adversely affected by the scarcity of fx for imports in Nigeria. Its total land area increased by 18% to 16,650ha in 2015, out of which 92% is mature land. This trend is likely to be seen in the coming quarters. The stock has gained +17.7% ytd, outperforming the NSE ASI by 19.6%. At current levels, Presco trades on a 2016 P/E multiple of 12.6x for EPS growth of 17.3% in 2017E. We expect a positive reaction from the market.

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

Presco Q2 2016 results (N millions)

Source: NSE, FBNQuest estimates

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