FREE

PRESCO PLC H1'22 - Elevated CPO prices spur topline growth

Rising costs pressure margins Amid the ongoing geopolitical tensions that have disrupted the global edible oil supply chain and given rise to a deficit in the supply of other rival oils, there has been renewed demand for CPO globally, and an attendant rise in the commodity’s price. Accordingly, the shortage has also translated to a hike in domestic CPO prices. As a result, PRESCO’s Q2’22 revenue rose by 63% y/y, consolidating H1’22 revenue at N41.7 billion (+94% y/y). Reopened borders may quell expected price increase For the rest of the year, we expect international CPO prices to continue its upward trend and reflect in domestic prices, bolstering margins for palm oil producers. However, the reopening of the borders may give rise to smuggling activities and dampen the expected price increase.

Conversely, we expect cost pressures to remain elevated, on the back of the continuous FX liquidity crisis and rising fertilizer prices, thereby straining profitability. In terms of finance costs, given the recently issued ₦30 billion 7-year bond, and an embedded 3-year moratorium, we expect slowed growth in finance costs for the rest of the year, amid possible rate upticks. Overall, we forecast revenue and PAT growth of 33% y/y and 47% y/y to ₦62.6 billion and ₦27.7 billion respectively. We value PRESCO at a 12-month target price of ₦102.37, a 35% downside to current market valuation, and place a SELL rating on the stock.