- Presco Plc. (Presco) released its unaudited 9M 16 results wherein revenue climbed 48.4% YoY to N11.9 billion while PBT and PAT doubled YoY to N9.7 billion and N6.8 billion respectively.
- Favourable FX policy sustains revenue growth: Extending double digit growth in the prior two quarters, Q3 16 turnover climbed 31.6% YoY to N4.4 billion. The sturdy top-line growth continues to reflect upswing in CPO prices (+41.1% YoY) as CBN’s stringent FX policy on CPO imports (35% of total supply) provides a competitive advantage to local producers.
- Gains on biological asset boost earnings: Further bolstering earnings performance is the sizable jump in gains from biological asset (+75.7% YoY to N3.8 billion). We believe higher domestic CPO prices used in biological asset valuation underpinned the upsurge in gains. Consequently, Presco reported its highest earnings in 23 quarters with both PBT and PAT climbing 69.1% YoY and 59.7% YoY to N5.6 billion and N3.8 billion respectively.
- FX restrictions on CPO imports keep outlook positive: Going into the last quarter of the year, waning weather shocks should result in bearish trends in global CPO price as production prospects improve. Nonetheless, CBN’s continued proscription of CPO imports from the interbank market and continued naira weakness at the parallel market should leave CPO imports at a price disadvantage. Given the implied support for domestic CPO producers, we project a 59.5% YoY jump in Q4 16 revenue to N3.8 billion. Elsewhere, higher CPO prices should continue to buoy biological asset valuation. Impact of the foregoing should more than offset input cost pressures (+52.6% YoY) in Q4 16. Consequently, we project Q4 16 PAT of N769 million vs. post-tax loss of N1.6 billion in Q4 15.
- Presco’s share price has climbed 28.2% YTD outperforming the broader NSEASI (-3.7% YTD) as investors priced in the positive impact of CBN’s FX policy on Presco’s earnings. Currently the stock trades at a P/E of 7.4x (forward: 6.0x) compared to its Bloomberg Middle East and Africa Peers at 9.5x (forward 9.4x). Last trading price of N42.30 is at a 15% discount to our FVE of ₦48.70 which translates to a NEUTRAL rating.
