FSDH Initial Reaction: Presco 2Q22 results 
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August 2, 2022/FSDH Research

Key Performance Highlights:

• Presco published its 2Q22 numbers on August 2, delivering robust top-line performance. Okomu Oil Palm Company and Presco are the most prominent players in Nigeria’s oil palm space, with Presco significantly underperforming its closed competitor (Okomu Oil: 92.1% YoY revenue growth in 2Q22). Nonetheless, Presco recorded a robust 63.2% YoY revenue growth to N22.1 billion in 2Q22 compared to N13.5 billion in 2Q21. The company outperformed last quarter’s performance, with the revenue up by 12.7% QoQ against 2Q21.
   
• The blockbuster top-line performance was partially offset by a 66.8% YoY increase in the cost of sales (-0.9% QoQ), resulting in a 55 bps contraction in gross margin to 74.2% in 2Q22. The company’s administrative expenses grew substantially by 221.5% YoY to N4.7 billion, and the Selling & Distribution expenses soared 76.9% YoY to N355 million in 2Q22. The increase in expenses was primarily due to rising inflationary pressures during the period. On the other hand, the company recorded other losses of N13 million in 2Q22, compared to losses of N167 million in the prior-year period. The robust top-line was weakened by rising operating costs resulting in a 35.2% YoY growth in operating profit to N11.6 billion in 2Q22.
   
• The net finance cost shot up 16.5x YoY to N2.4 billion in 2Q22 compared to N145 million in the prior-year period. The company recorded an effective tax rate of 17.7% in 2Q22 compared to 20.3% in 2Q21. Higher finance costs partially offset by a lower effective tax rate resulted in a 12.7% YoY rise in profit after tax to N7.6 billion in 2Q22 compared to N6.7 billion in 2Q21. The profits also grew 28.8% QoQ compared to the 1Q22 results, owing to a 12.7% QoQ sequential revenue growth in 2Q22, magnified by a 43.9% QoQ decrease in the effective tax rate to 17.7% in 2Q22, partially offset by a 62.3% QoQ rise in finance costs to N2.4 billion versus N1.5 billion in 1Q22. The earnings per share was reported at N7.59/share in 2Q22 against N6.73/share in 2Q21, a 12.7% YoY increase (1Q22: N5.89/share).
   
• Presco Plc recently announced the issuance of N34.5 billion series 1 senior unsecured 7-year fixed rate bonds under its N50 billion-bond issuance programme. FMDQ Exchange has approved the listing, and GCR Ratings has assigned a national scale long-term Issue rating of A-(NG) to the bonds with a stable outlook. The proceeds from the issuance will be used to refinance existing facilities from banks and to augment working capital requirements.
   
• Furthermore, earlier this month, at the AGM, Presco announced a final dividend payment of N6.60 per share for FY21. This brought the total dividends paid by the company for FY21 to N7.60 per share versus N2.00 per share in FY20.

Market Reaction: The investor reaction to the solid 2Q22 results was muted as the Presco stock remained unchanged at N158.40, versus a 0.83% loss for the All-Share Index (1/8). Moreover, the stock remained unchanged at N158.40 on Tuesday (2/8) versus a 1.35% gain for the all-share index. 

Presco Earnings Highlight 2Q22

Source: Company Financials, FSDH