July 30, 2024/Cordros Report
Presco Plc (PRESCO) published their Q2-24 unaudited financials yesterday (29 July), reporting a standalone EPS of NGN14.82 (Q2-23: NGN5.12), underpinned by impressive revenue growth (+73.9% y/y). As a result, the H1-24 EPS printed NGN38.88 (H1-23: 15.08).
Revenue grew by 73.9% y/y in Q2-24 (H1-24: +83.1% y/y), supported by the impact of naira devaluation on CPO prices and higher volumes. Analyzing the revenue breakdown, the company recorded expansion in its sales of crude and refined products segment (+74.0% y/y) while the mill by-products segment declined (-93.8% y/y). On a quarter-on-quarter basis, revenue increased by 6.9%.
Gross margin (+10.00ppts y/y) increased to 69.9% in Q2-24 (Q2-23: 59.9% y/y) following a slower increase in the cost of sales (+38.5% y/y) relative to revenue (73.9% y/y). We note significant cost pressures in the period, particularly in (1) the upkeep of mature plantings, harvesting, and labour (+25.9% y/y), (2) mill processing, refinery, and packaging (+171.1% y/y), and (3) repairs and maintenance (+403.1% y/y). Consequently, EBITDA (+733bps) and EBIT (+12.27 ppts) margins rose to 52.5% and 50.0%, respectively, amid a 37.1% y/y increase in operating expenses.
Further down, net finance costs rose by 4.4% y/y to NGN1.94 billion in Q2-24 (Q2-23: NGN1.86 billion) following higher finance costs (+14.4% y/y) arising from higher interest on loans (+11.0% y/y) and overdraft (+60.4% y/y).
Profit before tax increased by 159.8% y/y to NGN20.78 billion in Q2-24 (Q2-23: NGN8.00 billion). Following a tax expense of NGN5.96 billion (Q2-23: NGN2.88 billion), profit after tax came in at NGN14.82 billion (Q2-23: NGN5.12 billion), representing an increase of 189.4% y/y.
Comment: PRESCO’s performance was impressive as expected, following the effect of FX devaluation on CPO prices. However, we remain concerned about rising costs, including increased fertilizer expenses which have an FX passthrough and could potentially pressure margins. All told, we believe the resilient topline will continue to support earnings. Our estimates are under review.
