August 2, 2023/Cordros Report

Presco Plc (PRESCO) published its H1-23 unaudited financials yesterday, reporting an 11.9% y/y increase in H1-23 EPS to NGN15.08 (H1-22: NGN13.47), underpinned by impressive revenue growth (+15.3% y/y) and a decline in operating expenses (-15.3% y/y).
 
PRESCO’s revenue grew by 15.3% y/y in H1-23 on the back of higher CPO volumes amid tempered CPO prices. Peculiarly, PRESCO’s topline grew by 18.4% y/y in Q2-23, surpassing the slow growth recorded in the first quarter of the year (Q1-23: +0.4% y/y).
 
Gross margin contracted by 616bps to 66.3% in H1-23 (H1-22: 72.5%), following significant cost of sales (+41.1% y/y) pressures. We attribute the higher cost to the impact of increased fertilizer costs in the period. Consequently, EBITDA (-55bps) and EBIT (-13bps) margins declined to 55.9% and 51.9%, respectively, despite the fall in operating expenses (-15.3% y/y).
 
Further down, net finance costs expanded slightly by 4.6% y/y to NGN4.05 billion in H1-23 (H1-22: NGN3.87 billion), driven majorly by a 4.8% y/y increase in finance cost to NGN4.06 billion (H1-22: NGN3.87 billion).
 
Overall, profit before tax in H1-23 increased by 17.2% y/y to NGN20.89 billion. Following a tax expense of NGN5.80 billion, profit after tax settled at NGN15.08 billion (H1-22: NGN13.47 billion), representing an increase of 11.9% y/y.
 
Comment: PRESCO’s performance is impressive, as it is in tandem with our expectations of a higher volume from the company’s Sapkomba and acquired SNL estates. However, we are concerned about the burgeoning cost pressures following the effects on margins. Nonetheless, we remain optimistic about the company’s 2023FY performance as we believe the company’s inventory build-up will shore revenue growth in the coming lean season. Our estimates are under review.