November 1, 2021/Cordros Report

PRESCO published its Q3-21 unaudited financials on Friday (29 October), reporting EPS growth of 469.8% y/y to NGN3.65 in Q3-21 (Q3-20: NGN0.64), underpinned by an impressive top-line and lower finance costs. Thus, 9M-21 EPS came in at NGN13.78 (9M-20: NGN5.03). The board proposed an interim dividend of NGN1.00/s, which implies a yield of 1.1% on the last closing price of NGN89.00 (29 October).

PRESCO’s revenue in Q3-21 (+134.0% y/y to NGN12.77 billion) was driven by (1) sustained recovery in the demand for CPO from last year’s pandemic-induced dip, and (2) a higher CPO price (Average CPO price: USD1,126.83/mt in Q3-21 vs USD741.90/mt in Q3-20) facilitated by production shortfalls in Indonesia and Malaysia (c.85.0% of world CPO supply). However, on a q/q basis, the top-line was lower by 5.7%, following relatively lower volumes.

Gross margin (+209bps) increased to 54.8% in Q3-21 (Q3-20: 52.7%) on the back of faster growth in revenue (+134.0% y/y) relative to the cost of sales (+123.6% y/y). Against the preceding, EBIT margin expanded by 15.24 ppts to 37.1% (Q3-20: 21.9%) amid a 42.7% y/y increase in OPEX.

Further down, net finance charges declined by 73.0% y/y to NGN104.90 million (Q3-20: NGN388.22 million), driven by a lower overdraft balance. As of 9M-21, the company’s overdraft facility decreased by 66.0% to NGN2.16 billion (FY-20: NGN6.36 billion).

Overall, PRESCO’s PBT increased by 474.7% y/y to NGN4.64 billion (Q3-20: NGN806.76 million). A tax expense of NGN988.36 million resulted in a PAT of NGN3.65 billion in the period (vs PAT of NGN640.37 million in Q3-20). 

Comment: PRESCO’s performance is impressive and it is tandem with our expectations following improved demand for CPO and higher CPO prices. We highlight that the operating environment remains favourable for CPO planters and thus, expect a similar performance in Q4-21. Our estimates are under review.