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PRESCO PLC FY'16 - Another strong earnings performance in sight

PRESCO reported FY’16 PAT of ₦21.7 billion, a significant improvement from the ₦2.5 billion reported in FY’15. The notable surge in bottom line was largely driven by a ₦24.9 billion revaluation gain on biological assets (FY’15: ₦1.1 billion). Excluding the revaluation gains however, earnings would still have come in very strong, with PBT doubling y/y to c.₦6.3 billion despite recording FX loss of ₦1.4 billion. In line with industry trend, the y/y earnings performance was majorly buoyed by strong palm oil price over the course of the year following the inclusion of Palm kernel/Palm oil products/Vegetable oils on the list of 41-items restricted from accessing FX from the interbank market. On the back of the decent performance, the Board of Directors proposed a final dividend/share of ₦1.50 (FY’15: ₦1.00), in line with our estimate but ahead of Consensus’ ₦1.00.

We expect a much stronger Fresh Fruit Bunch (FFB) harvest in FY’17 (down 3% in FY’16). Our optimism is buoyed by the significant increase in PRESCO’s mature oil palm plantations reported at 15,356ha for the year (FY’15: 11,587ha), ahead of our expectation of 12,224ha. We expect this to buoy volume growth in FY’17, and forecast FY’17 revenue at ₦20.7 billion (Previous ₦18.1 billion). Consequently, we foresee another strong performance by PRESCO in 2017. Without considering possible revaluation gains/losses from biological assets, we forecast FY’17 PAT at N6.0 billion. After updating our model, we revise our target price higher to ₦59.45 (Previous: ₦53.49). We have a BUY rating on PRESCO.