Increasing palm oil imports into the country could lead to a flat year for palm producer Presco Plc. Presco Plc is our STOCK PICK for the week.

About Presco Plc

Presco Plc was incorporated on the 24th of September, 1991 as Presco Industries Limited. In 1992, the company became a public limited liability company and was listed on the Nigerian Stock Exchange (NSE).

The company’s activities include the cultivation of oil palm as well as the extraction, refining and fractionation of crude palm oil into finished products.

Recent results

Results for the third quarter ended September 30, 2018 show that revenue fell from N16.9 billion in 2017 to N16.2 billion in 2018. Profit before tax dropped from N7.9 billion in 2017 to N7.4 billion in 2018.

Profit after tax dipped from N5.3 billion in 2017 to N5.2 billion in 2018.

Pricing

Current Share Price: N65.75
Year High: N80
Year Low: N53
Year to Date: -4.01%
One Year Return: 2.73%

Price Outlook

Possibilities of the stock going higher are quite high. The stock was the best performing last week and has closed in the green in the first few trading days of the week. It is currently trading at 21% below its year high of N80.

Valuation

The stock is currently trading at a PE ratio of 2.6 times earnings, far lower than the average PE ratio on the NSE. It is also traded at a lower PE ratio compared to Okomu, its peer, which is trading at 7.6 times earnings.

Outlook

Oil palm producers in the country had boom results in 2015 and 2016 largely due to the CBN banning importers from the official foreign exchange market. Enhanced foreign exchange liquidity means that imports have slowly started to rise again.

Results for the third quarter ended September 30, 2018 were largely flat and could remain like that for the full year.

The export component, however, rose sharply from N320 million in the nine months ended September 2017 to N908 million for the nine months ended September 2018.

This could be an indication of the company exporting higher volumes, as crude palm oil prices have trended downwards in the last few months.

FY 2018 dividend may be flat

For shareholders, the company would most likely maintain its dividend payout ratio, as the drop-in earnings per share was minor. Presco paid a dividend of N2 for the 2017 financial year.

For the nine months ended September 30, 2018 earnings per share was N5.29 as against N5.36 recorded for the comparative period in 2017.

On a quarterly basis, however, the decline was much more noticeable — Q3 2018 earnings per share N1.29 as against the N1.95 recorded in 2017.

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