EUR 53.02 For Business Accounts Only

PRESCO PLC - Higher domestic prices buoy earnings

After seeing a bulk of our positive prognosis about the Nigerian Oil Palm sector reflect further in the recently released half year earnings, we were expecting nothing less from PRESCO. H1’16 result did not disappoint in this regard, and in fact, only further attested to our positive stance on the sector. From y/y and q/q perspectives, and even compared to our estimates, the 6-month numbers showed strong performances across all profit lines. Excluding revaluation gains of N658 million, H1’16 EBIT at N4.5 billion (up 127% y/y, 56% q/q) completely humbled our N2.2 billion estimate, largely on the back of a strong 60% y/y growth in revenue to N7.5 billion (Vetiva: N6.4 billion). Again, the impact of higher palm oil prices cannot be overemphasized in the 6-month earnings. The currency remains under pressure in the autonomous market where import of Palm oil and other items on the list of 41-items banned from official FX window are meant to be funded; the naira has further depreciated 8% in the parallel market to NGN380/USD since end of Q2. This would only mean more pressure on palm oil imports, consequently pushing local prices further north. PRESCO, amongst other big local players in the oil palm industry, stands to benefit further from the higher pricing going forward.

After updating our model to reflect higher oil palm prices, we revise our FY’16 revenue forecast to N15.3 billion (Previous: N14.2 billion). Whilst we note Foreign Exchange loss of N717 million incurred in Q2 period (following 42% devaluation in official exchange rate to NGN285/USD), and the tendency for more FX losses in H2’16 given further depreciation since Q2 (Current rate: NGN320/USD), we are confident that FY’16 earnings will remain very robust as the higher product pricing continues to buffer all profit lines, even as OPEX containment remain efficient. In all, we revise our FY’16 PAT (excluding revaluation gains) to N4.7 billion (Previous: N2.9 billion). Our target price is also revised to N46.72 (Previous: N43.38).

PRESCO is a fully only integrated player in the Nigerian oil palm industry, specialized in the cultivation of oil palms and in the extraction, refining and fractioning of crude palm oil (CPO) into refined products. The Siat Group currently own 60% of the company with the remaining held by Nigerian institutions and individuals.