Event: Presco reports Q3 2017 results
Implications: Negative reaction by market expected
Positives: No obvious positives
Negatives: PBT down -94% y/y; Post-tax loss of –N196m vs. PAT of N3.8bn in Q3 2016
Presco reported its Q3 2017 results this afternoon, showing sales and PBT declines of -7% y/y and -94% y/y to N4.1bn and N351m respectively. Presco reported an after-tax loss of –N196m compared with PAT of N3.8bn reported in the corresponding quarter of 2016. In addition to the sales decline, gross margin contracted by –3,991bps y/y to 55.8%, net finance costs increased by 168% y/y and the company reported a –N1.4bn loss on the revaluation of biological assets. These offset a -77% y/y decline in operating expenses and led to the weak bottom line. If we strip out the loss on biological asset revaluation, the underlying results reveal that Q3 PBT declined by -6% y/y. The company recorded a N3.8bn gain on biological asset revaluation in Q3 2016.
On a sequential basis, sales and PBT declined by 28% q/q and 86% q/q respectively. The post-tax loss compares with a PAT of N1.7bn reported in the preceding quarter. Although operating expenses declined by -76% q/q, this was completely offset by the sales decline, a -1,423bp q/q gross margin contraction, a 66% q/q rise in net finance costs and the loss on biological assets revaluation, leading to the PBT decline.
On a 9M basis, sales advanced by 42% y/y to N16.9bn. PBT and PAT declined by -18% y/y and -21% y/y to N7.9bn and N5.4bn respectively, due to a -457bp y/y contraction in gross margin and rises of 19% y/y and 50% y/y in operating expenses and net finance costs respectively.
Compared with our forecasts, Q3 sales and PBT missed by 29% and 87% respectively. The after-tax loss also diverged significantly from our N1.7bn forecast. The decline in sales surprised negatively because we had held the 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. On an annualised basis, Presco’s 9M PBT of N7.9bn tracks well behind consensus’ 2017 PBT forecast of N14.8bn.
Year-to-date, Presco shares have gained 74.1%, outperforming the NSEASI which has gained 37.3%. We expect the market to react negatively to these results.
We rate the stock Outperform. Our estimates are under review.
Presco Q3 2017 results: actual vs. FBNQuest Research estimates (N millions)