August 10, 2026/InvestmentOne Report
PRESCO’s H1:2026 Group revenue was effectively flat at NGN198.75bn (+0.01% YoY), but the headline conceals a sharp geographic split. Nigeria revenue rose 12.41% to NGN164.63bn, lifting its share of Group sales to 82.8% from 73.7%, while Ghana revenue fell 34.74% to NGN34.12bn. Crude and refined-product sales declined 2.56% to NGN193.65bn, partly offset by NGN4.98bn of FFB sales and NGN0.12bn of mill by-products. Momentum weakened through the half: Q1 revenue grew 7.55% YoY, but Q2 fell 6.73% to NGN97.89bn. The weaker outcome points more toward domestic realized pricing, volume/mix and Ghana than a global-price collapse.
Narrower Import Parity and Sticky Costs Expose a Q2 Cost-Price Mismatch: Cost of sales rose 5.47% to NGN32.93bn in H1 despite flat revenue, reducing gross margin by 86bps to 83.43%. Q2 was materially weaker: revenue fell 6.73% while cost of sales rose 30.91%, compressing gross margin by 686bps to 76.14%. Production cost was broadly stable (+1.52%), but depreciation more than doubled to NGN5.92bn, while administrative expense rose 13.26% and selling/distribution expense 74.80%. Domestic pricing pressure appears to be the more relevant driver of the margin weakness, rather than a collapse in global CPO prices. Okomu Oil Palm’s management indicated that domestic product prices had fallen by nearly 30% since December 2025 despite elevated input costs, while Malaysian Palm Oil Board (MPOB) data show that international CPO prices averaged about 11.4% higher YoY in Q2:2026. The 2026 fiscal measures also reportedly reduced the effective crude-palm-oil tariff to 28.75% from 35% from April, while a more stable naira lowers the NGN landed cost of imports. Lower protection and FX stability therefore narrow the domestic price umbrella and can cap local realizations even when international CPO is firm.
Deleveraging Cuts Finance Costs and Supports PBT Growth: PRESCO materially repaired its capital structure in H1:2026, with gross borrowings falling 62.33% to NGN119.52bn from NGN317.30bn at FY:2025 after rights-issue proceeds were used to fully repay two 14% USD vendor-financing facilities tied to the GOPDC and Saro acquisitions. The impact was immediately visible in earnings, as finance costs declined 31.92% YoY to NGN13.27bn, while net finance cost fell to NGN4.26bn from NGN17.95bn. Interest coverage consequently improved to 9.5x from 6.7x, allowing Profit Before Tax (PBT) to rise 9.27% despite a 2.56% decline in operating profit. Meanwhile, cash declined to NGN129.86bn from NGN262.58bn, even as net operating cash flow increased 21.47% YoY to NGN68.08bn, indicating that the lower cash balance largely reflects the deliberate deployment of liquidity toward deleveraging rather than weaker operating cash generation.
Higher Tax and Share Dilution Reverse PBT Resilience at the Bottom Line: H1 tax expense rose 72.69% YoY to NGN39.95bn, lifting the effective tax rate to 32.68% from 20.68%, while Q2’s effective rate climbed further to 37.67%. Consequently, Profit After Tax (PAT) declined 7.27% to NGN82.27bn despite the 9.27% increase in PBT, indicating that taxation has replaced financing costs as the major constraint on bottom-line conversion. EPS fell more sharply by 20.52% to NGN70.52, reflecting both the weaker PAT and dilution from the increase in weighted average shares to 1.17bn from 1.00bn following the rights issue. The implication is that improvements in operating performance and financing costs will translate less efficiently into shareholder earnings if the effective tax rate remains around current levels, making tax normalization a key determinant of H2 PAT and EPS. Meanwhile, the NGN3.40bn exchange loss and NGN21.16bn translation loss recorded in OCI highlight the Group’s increased exposure to Ghana following the GOPDC consolidation; however, the translation loss is noncash and should be viewed primarily as a source of volatility in reported equity and comprehensive income rather than a deterioration in underlying operating cash generation.
Cash Conversion Remains Sound Despite the Seasonal Inventory Build: Net operating cash flow increased 21.47% to NGN68.08bn and a simple OCF less PPE-capex proxy produced about NGN63.50bn of free cash flow. Inventories rose 64.17% to NGN65.80bn, led by finished goods of NGN27.71bn, but PRESCO states that it builds stock during peak production for lean-season demand. With receivables falling to NGN17.68bn from NGN48.98bn, H2 sell-through is the key test,inventory conversion would support cash flow, while continued finished-goods accumulation alongside weak revenue would become a more meaningful warning signal.
Corporate Action: PRESCO declared an interim dividend of NGN10.00 per share for H1:2026, with a 14 August qualification date, register closure from 17-21 August and payment on 27 August 2026. We interpret the 50.00% YoY decline in the interim dividend as prudent capital allocation amid lower PAT, a heavier tax burden and NGN197.25bn of H1 loan repayments, rather than evidence of a liquidity constraint.
Outlook: We retain a balanced H2:2026 view. USDA estimates Nigerian palm-oil production of about 1.50mt against consumption of 1.94mt in 2025/26, a 0.44mt deficit that could widen to 0.52mt in 2026/27. PRESCO’s integrated capacity and plantation base positions it to participate in that deficit, while global CPO remains reasonably supportive. In the near term, however, domestic import parity is the key constraint. Our FY:2026 forecast therefore embeds a material reset: revenue of NGN347.22bn (+5.01% YoY), gross margin of 72.00%, EBIT of NGN187.50bn (-12.77%), PBT of NGN177.43bn (-0.31%) and PAT of NGN119.79bn (-1.29%). Lower finance costs remain the main support, while the key execution requirements are partial Ghana recovery, H2 OPEX normalization, inventory conversion and an effective tax rate around 32% rather than Q2’s 37.7%. At our NGN2,233.80 target price, the stock offers 7.91% upside, hence we maintain a NEUTRAL rating on PRESCO.
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