Culled—Proshare

May 4, 2018/FBNQuest Research

Event: Presco reports Q1 2018 results

Implications: Neutral-to-negative reaction by market expected

Positives: No obvious positives

Negatives: PBT and PAT declined by -33% y/y on average

Late yesterday, Presco published its Q1 2018 results which showed that sales declined by -8% y/y to N6.6bn. In addition to the sales decline, gross margin contracted by -195bps y/y to 77.9% while operating expenses and net finance charges increased by 17% y/y and 135% y/y respectively. 

Consequently, PBT declined by -32% y/y to N3.4bn. Owing to a slightly higher tax rate of 24% (versus 23% in Q1 2017), PAT declined by a -33% y/y (vs -32% y/y for PBT) to N2.6bn. On a sequential basis, sales grew by 21% q/q. We attribute the sales increase during the quarter to seasonality. 

The peak period for palm oil companies is within the first half of the year. As such, the Q1 quarter is usually one of the stronger quarters. Although operating expenses and net finance charges declined by -69% q/q and -14% q/q respectively, a -389bp q/q gross margin contraction weighed on earnings. As such, PBT grew by a slimmer margin of 14% q/q compared with the sales growth of 21%. PAT declined by -87% q/q. 

We recall that the company recorded a tax credit of N17.0bn in the preceding quarter. Compared with our unrevised estimates (post Q4 results), sales and PBT were behind by -17% and -24% respectively 

This year, Presco shares have gained 2.9% and have underperformed the NSEASI which has gained 7.5%. We expect the market’s reaction to these number to be neutral to negative. 

We rate the stock Neutral. Our estimates are under review.

Presco Q1 2018 results: actual vs. FBNQuest Capital Research estimates (N millions)