FSDH Initial Reaction: Presco 3Q22 results 
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November 4, 2022/FSDH Research

Key Performance Highlights:

• Presco published its 3Q22 numbers on October 29, delivering a robust 37.0% YoY revenue growth. Okomu Oil Palm Company and Presco are the most prominent players in Nigeria’s oil palm space, with Presco outperforming its closest competitor (Okomu Oil: 27.0% YoY revenue growth in 3Q22) this quarter. Presco recorded a robust 37.0% YoY revenue growth to N17.5 billion in 3Q22 compared to N12.8 billion in 3Q21. However, the company underperformed its performance in the previous two quarters, when revenues jumped 147.4% YoY (1Q22) and 63.2% YoY (2Q22).
   
• The robust top-line performance was partially offset by a 57.5% YoY increase in the cost of sales (59.3% QoQ), resulting in a 675 bps YoY contraction in gross margin to 48.0% in 3Q22. The company’s administrative expenses grew substantially by 26.9% YoY to N2.4 billion, and the selling & distribution expenses soared 338.0% YoY to N692 million in 3Q22. The increase in expenses was primarily due to rising inflationary pressures during the period. On the other hand, the company recorded other losses of a mere N73 million in 3Q22, compared to losses of N323 million in the prior-year period. The robust top line was weakened by rising operating costs resulting in an 18.0% YoY growth in operating profit to N5.6 billion in 3Q22.
   
• The net finance cost shot up 20.1x YoY to N2.1 billion in 3Q22 compared to N105 million in the prior-year period. The company recorded an effective tax rate of 31.2% in 3Q22 compared to 21.3% in 3Q21. Elevated finance costs coupled with a higher effective tax rate resulted in a 34.1% drop in profit after tax to N2.4 billion in 3Q22 compared to N3.6 billion in 3Q21. The net profit declined 68.3% QoQ compared to the 2Q22 results, owing to a drop in sequential revenue growth in 2Q22, magnified by rising costs sequentially. The earnings per share was reported at N2.40/share in 3Q22 against N3.65/share in 3Q21, a 34.1% YoY drop (2Q22: N7.59/share).
   
• On October 31, 2022, the company announced an interim dividend of N2.00 (3Q21: N1.00), payable to all shareholders whose names would appear in the Company’s Register of Members at the close of business on the 21st of November, 2022.

Market Reaction: The investor reaction to the 3Q22 results was muted as the Presco stock remained unchanged at N128.35, versus a 0.17% loss for the All-Share Index (31/10). Moreover, the stock remained flat at N128.35 on Tuesday (1/11) versus a 0.21% loss for the All-Share Index.

Presco Earnings Highlight 3Q22

Source: Company Financials, FSDH