The oil palm producers have benefited immensely from government policies, which explain why Presco Nigeria Plc has been on a growth spurt from 2015 through 2016.
The company’s expansion plans carried out with a view to increasing its share of the market will bolster sales, lead to increased profit while contemporaneously magnifying shareholders earnings.
Oil palm kernel or CPO was among the 41 items the central bank excluded from its official window, a policy that was a boon for oil palm producers as local rivals who import, were hard hit and had to forcefully patronize Presco.
With weaker competition due to the devaluation of the naira, we expect the company to outperform the NSE ASI as it did throughput last year.
The company plans to increase the export of palm-Kernel to Europe in order to enable it cushion the effects of a severe dollar scarcity.
The company plans to increase oil-palm plantation by 85.18 percent to 31,400 hectares by 2021 from 16,900 while it targets to raise palm-oil mills capacity to 120 tons per hour from 60 tons, according to its website.
For the first nine months through September 2015, Presco’s Earnings Before Interest and Tax and Amortization (EBITA) spiked by 86.50 percent to N6.66 billion while net income surged 98.31 percent to N6.80 billion. The company’s EBITA margins increased to 55.82 percent in September 2016 from 44.02 percent the previous year.
Net margins moved to 57 percent as against 42.66 percent last year, thanks to gains on biological assets and a reduction in foreign exchange loss.
Presco’s share price closed at N43.85 as of 1:30 pm on the floor of the exchange.
One year to date, Presco shares have gained +24.89 percent, significantly outperforming the NSE ASI which has declined –6 percent.
A Price Earnings Ratio (P/E) ratio of 7.73 times indicates that the company may currently be undervalued going by our moderately acceptable P/E of 10x. Projected P/E ratio places Presco at an even more undervalued price suggesting that there may at least be some upside of between 10-15% in capital appreciation.
It is important to note however, that Presco’s valuation will also depend on liquidity and interest in the stock market this year. If liquidity increases as it did in December, then Presco could send investors who buy it now smiling to the bank sooner rather than later.