Culled—Proshare
April 18, 2017/FBNQuest Research
Event: Presco reports Q4 2016 results
Implications: Neutral to slightly positive market reaction expected
Positives: Q4 2016 sales up 57%
Negatives: Operating expenses up 48% y/y; gross margin contraction of -1,873bps y/y to 61.4%
Presco reported its Q4 2016 results this morning showing sales growth of 57.2% y/y to N3.8bn. PBT and PAT of N21.5bn and N14.9bn compare with pre-tax and post-tax losses of –N610m and –N1.2bn respectively recorded in Q4 2015.
The strong earnings were driven by biological assets revaluation gain of N20.5bn recorded in Q4 2016. Excluding the biological assets revaluation gain, PBT would be around N1.0bn. Although sales growth was strong, a gross margin contraction of -1,873bps y/y to 61.4% and opex growth of 48.2% y/y weighed on earnings.
To a lesser extent, net finance growth of 107% y/y also contributed. Sequentially, sales were down -14.5% q/q (Q4 is usually one of the weaker quarters for palm oil companies due to seasonality) while PBT and PAT advanced by around 290% q/q on average.
Similar to the y/y trend, gross margin contracted by -466bps q/q while opex and net finance costs advanced by 177% q/q and 119% q/q respectively and weighed on the bottom line.
On a full year basis, sales of N15.7bn were up 50.4% y/y. PBT and PAT of N31.2bn and N21.7bn were up by 641% y/y and 772% y/y respectively. In addition to the strong sales growth, gross margin expanded by 847bps y/y to 72.0%. A 46.6% y/y opex growth weighed on earnings.
Compared with our estimates, Q4 sales were ahead by 26% while PBT was in line (excluding biological asset revaluation gains).
Presco has declared a dividend of N1.50 compared with consensus estimate of N1.45. The DPS implies a yield of 3%. The stock has gained +17.2% this year and has underperformed the broad index which has shed -5.1% ytd. At current levels, Presco trades on a 2017 P/E multiple of 8.1x for EPS growth of 14.8% in 2018E.
We expect the market reaction to be neutral to slightly positive given that the full year underlying performance was slightly ahead (by 7%) of consensus estimates.
We rate the stock Neutral. Our estimates are under review.
Presco Q4 2016 results: actual vs. FBNQuest Research estimates (N millions)
| Q4 2016 | FY 2016 | |||||||||
| Actual | Y/y | Q/q | FBNQuest est. | Actual vs FBNQuest est. (%) | Actual | Y/y | FBNQuest est. | Actual vs FBNQuest est. (%) | ||
| Sales | 3,779 | 57.2% | -14.5% | 3,008 | 25.6% | 15,716 | 50.4% | 14,945 | 5.2% | |
| Cost of sales | -1,459 | 205.3% | -2.8% | -716 | 103.9% | -4,405 | 15.5% | -3,662 | 20.3% | |
| Gross profit | 2,320 | 20.4% | -20.5% | 2,292 | 1.2% | 11,311 | 70.5% | 11,284 | 0.2% | |
| -gross margin | 61.4% | -1873bps | -466ps | 76.2% | -1481bps | 72.0% | 847bps | 75.5% | -353bps | |
| Operating expenses | -2,195 | 48.2% | 177.0% | -1,329 | 65.2% | -4,603 | 46.6% | -3,736 | 23.2% | |
| Gain/Loss on bio. asst. revaluatn. | 20,471 | n/a | 445.8% | 0 | n/a | 24,879 | 2242.2% | 4,409 | 464.3% | |
| Other operating income | 245 | 1.6% | 709.1% | 286 | -14.5% | 323 | -11.4% | 365 | -11.4% | |
| Operating profit | 20,840 | n/a | 252.8% | 1,249 | 1568.1% | 31,911 | 548.3% | 12,320 | 159.0% | |
| Int. and similar chgs | -262 | 107.4% | 119.2% | -151 | 73.8% | -685 | -3.3% | -573 | 19.4% | |
| Exchange gains (loss) | 934 | n/a | n/a | 0 | n/a | 0 | n/a | -934 | n/a | |
| PBT | 21,512 | n/a | 285.0% | 1,099 | 1858.0% | 31,226 | 640.9% | 10,813 | 188.8% | |
| -PBT margin | 569.3% | 59466bps | 44284bps | 36.5% | 53276bps | 198.7% | 15835bps | 72.4% | 12634bps | |
| Tax | -6,577 | 1008.8% | 265.3% | -330 | 1895.4% | -9,491 | 451.4% | -3,244 | 192.6% | |
| Tax rate | 30.6% | 12785bps | -164bps | 30.0% | 57bps | 30.4% | -1044bps | 30.0% | 39bps | |
| PAT | 14,935 | n/a | 294.3% | 769 | 1842.0% | 21,735 | 771.7% | 7,569 | 187.2% | |
| -PAT margin | 395.2% | 44529bps | 30953bps | 25.6% | 36968bps | 138.3% | 11443bps | 50.6% | 8765bps | |
| Other comp. Income | 29 | -67.2% | n/a | 0 | n/a | 29 | 82.7% | 0 | n/a | |
| PAT after comp. Income | 14,964 | n/a | 295.1% | 769 | 1845.8% | 21,764 | 767.3% | 7,569 | 187.5% | |
