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PRESCO PLC Q1'17 - Impressive start to FY’17, ahead of estimates

Impressive start to FY’17, ahead of estimates

PRESCO’s Q1’17 earnings came in very strong with all profit lines more than doubling y/y. In line with the trend observed in 2016, the impressive performance was primarily driven by strong domestic palm oil prices amidst the inclusion of the product on CBN’s 41-item list not eligible for official FX funding. Buoyed by the price effect, Q1’17 revenue rose 125% y/y to ₦7.2 billion, beating our ₦6.2 billion estimate. Excluding Gains on revaluation of Biological Assets (up 150% y/y to ₦633 million), EBIT over the three-month period rose 167% y/y to ₦4.7 billion (Vetiva: ₦3.1 billion) – c.70% of the profit recorded in FY’16. With finance expenses coming just in line with expectation, PBT (without revaluation gains) rose 185% y/y to ₦4.4 billion, 49% ahead of our estimate.

PRESCO plans to spend ₦13 billion on CAPEX in 2017 through a mix of debt and internally generated funds, with 85% going into acquisition of Plant & Equipment. We see this as an important move in improving the growth prospect of the company given that its refinery is currently operating at near maximum capacity; management guides on 100% capacity utilization for FY’17. More importantly, PRESCO’s CPO production is poised for a boost from FY’18 as more plantations roll into maturity phase, further justifying the need for a larger refining capacity. After updating our model, we revise our FY’17 PAT to ₦9.5 billion (Previous: ₦6.0 billion). We also revise our target price higher to ₦65.46 (Previous: ₦59.45).