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May 23, 2022/CSL Research

Key Performance Highlights:

• Presco published its 1Q22 numbers on May 20, with robust operating performance and solid bottom-line results compared to the prior-year period. Okomu Oil Palm Company and Presco are the most prominent players in Nigeria’s oil palm space, with Presco significantly outperforming its closed competitor (Okomu Oil: 63.2% YoY in 1Q22). Presco recorded a robust 147.4% YoY revenue growth to N19.6 billion in 1Q22, influenced by the Russia/Ukraine crisis and sustained supply issues in the international market. The company outperformed last quarter’s performance significantly, with the revenue up by 51.0% QoQ against 1Q22.
   
• The exhilarating top-line performance was partially offset by a 281.1% YoY increase in the cost of sales (+9.1% QoQ), resulting in a 10.3% contraction in gross margin to 70.6% in 1Q22. The company’s administrative expenses soared 151.4% YoY, while the Selling & Distribution expenses grew substantially by 85.4% YoY. The increase in expenses was primarily due to rising inflationary pressures during the period. On the other hand, the company recorded other losses of N63 million in 1Q22, compared to gains of N224 million in the prior-year period. The robust top-line percolated down as the company reported a solid 92.1% YoY growth in operating profit to N10.1 billion.
   
• The net finance cost shot up 400.2% YoY to N1.5 billion in 1Q22 compared to N295 million in the prior-year period. The company recorded an effective tax rate of 31.5% in 1Q22 compared to 22.4% in 1Q21. Higher finance costs and a higher effective tax rate led to a 53.2% YoY rise in profit after tax to N5.9 billion in 1Q22 from N3.8 billion a year back. The profits also grew steadily compared to the 4Q21 results (+15.7% QoQ), owing to impressive sequential revenue growth in 1Q22, partially offset by a 95.2% QoQ drop in other operating income supported by a massive rise in finance costs. The earning per share was reported at N5.89/share in 1Q22 against N3.84/share in 1Q21, a 53.2% YoY increase.
   
• In March, Presco offered SNL SA to acquire 100 percent of the 7.33 billion ordinary shares of SNL held by SIAT SA for a cash consideration of N21 billion. SNL currently produces crude palm oil and crude palm kernel oil, and has a total planted area of 15,215 ha, with 51% thereof being plantings of between 1 and 5 years old. Presco believes that the acquisition will ultimately lead to reduced overhead and increased revenue through the exploitation of operational synergies across Presco and SNL, resulting in enhanced operational efficiencies of the enlarged entity post acquisition. Following this acquisition, in April, Presco Plc announced the successful issuance of N34.5 billion series 1 seven-year fixed-rate bonds under its N50 billion-bond issuance programme. The company is currently rated ‘A-’ by GCR Ratings and ‘A+’ by Agusto & Co., and the bonds will be listed on the Nigerian Exchange Limited and FMDQ Exchange. According to the management, the bond issuance was 247 percent oversubscribed and priced at a coupon rate of 12.85 percent. Stanbic IBTC Capital Limited acted as the lead issuing house, while CardinalStone Partners Limited and Quantum Zenith Capital and Investments Limited acted as joint issuing houses.

Market Reaction: The company reported results before the market close on Friday, and the investor reaction to the solid 1Q22 results was muted as the Presco stock remained unchanged at N200.00, versus a 0.55% loss for the All-Share Index (20/5). However, the stock dropped 10% on Monday (23/5) versus a 0.13% loss for the all-share index. Nonetheless, the stock has performed exceptionally well this year, outperforming the NSE All-share index by 125.4% YTD. 

Presco Earnings Highlight 1Q22

Source: Company Financials, FSDH