Event: Presco reports Q4 2017 results
Implications: Mixed reaction by market expected
Positives: Sales grew 44% y/y
Negatives: Opex grew 133% y/y
Earlier this morning, Presco reported its Q4 2017 results, showing sales growth of 44% y/y to N5.4bn. However, PBT declined by -86% y/y to N3.0bn. Despite a 2,038bp y/y gross margin expansion to 81.8% and the strong sales growth, these were not strong enough to offset a 133% y/y rise in opex, a 29% y/y increase in net finance charges and an -85% y/y reduction in biological asset revaluation gains to N3.1bn. Owing to a tax credit of N17.0bn, PAT (before other comprehensive income) grew by 34% y/y to N20.0bn. If we strip out the biological asset revaluation gain, the underlying results reveal that the company made a pre-tax loss of –N62m for the quarter.
On a sequential basis, sales and PBT grew by 33% q/q and 756% q/q respectively. Despite an opex growth of over 1000% q/q, the stronger bottom line was due to a 2,594bp q/q expansion in gross margin and the N3.1bn biological asset revaluation gain versus a loss of –N1.4bn in the prior quarter. PAT grew to N20.0bn versus a post-tax loss of –N196m in Q3 2017 owing to the N17.0bn tax credit. Compared with our estimates, Q4 sales were ahead by 44% while PBT and PAT were significantly ahead, due to the biological asset revaluation gain. We had forecast zero for this line.
On a full-year basis, sales advanced by 42% y/y to N22.4bn. We believe that the growth supports our opinion that local palm oil producers are in an advantageous position relative to importers (competitors) due to CBN policies which have encouraged local production and also translated to favorable pricing locally. Despite a 146bp y/y gross margin expansion, PBT declined by -65% y/y to N11.0bn due to increases of 71% y/y and 42% y/y in operating expenses and net finance charges. An 89% y/y decline in biological assets revaluation gain to N2.8bn also contributed. PAT grew by 17% y/y due to a tax credit of N14.5bn. FY 2017 sales were in line with consensus’ estimates. PBT was ahead by 20%.The company proposed a dividend of N2.00 per share, implying a yield of 3% and payout ratio of 8%. The DPS is higher than consensus’ DPS estimate of N1.37 and 33% higher than the dividend declared in 2016.
Year-to-date, Presco shares have gained 5.1%, slightly underperforming the NSEASI which has gained 7.0%. We expect the market’s reaction to these numbers to be mixed because we expect the better-than-expected dividend will slightly offset negatives coming in from weak underlying results.
We rate the stock Neutral. Our estimates are under review.
Presco Q4 2017 results: actual vs. FBNQuest Capital Research estimates (N millions)