* Analysts expect another positive H2’16
*Valuation revised higher on improved earnings outlook

By Emeka Anaeto, Economy Editor

Wading through the bearish market sentiment for most trading days in 2016, investors have amply rewarded good performance in Presco Plc.
The company had turned in impressive first half 2016, H1’16, results on July 29, 2016 with stellar performance in both topline and bottomline. Consequently, the market rewarded the stock with almost 5.0 per cent gains in the first post-result trading day.

Though the share price has been sluggish in recent trading days due to the general stock market bear run, in overall the stock has not only out-performed the market but also booked its place in the top ten on capital appreciation.

As at yesterday year-to-date, YtD, was 36.4%, a sharp jump from 12.12% as at date of announcement of the H1’16 result.
The result demonstrated the great opportunities that abound in Nigeria’s agro industry. In this time of severe economic crunch Presco, which operates its main line of business in oil palm production, processing and by-products manufacturing, has turned out results showing resilience. Just a few of quoted companies, including well known global brands, could achieve such results.

Strong H1’16 earnings
From year-on-year (YoY) and quarter-on-quarter (QoQ) perspectives, and even compared to analysts’ estimates, the H1’16 results showed strong performances across all profit lines.

Excluding revaluation gains of N658 million, H1’16 Earnings Before Interest (EBIT) at N4.5 billion showed a huge 127% YoY surge against corresponding period of 2015 while completely dwarfing analysts’ projection by over 50%.
The earnings strength was on the back of a 60% YoY growth in revenue to N7.5 billion, a development largely attributable to the impact of higher palm oil prices during the period.

Business and earnings outlook

Investment analysts believe this stellar performance is sustainable amidst worsening economic and operating environment, signposted by foreign exchange crises, interest rate hikes, inflationary pressures and ultimately depressed purchasing power across all economic segments.

Some of the analysts see revenue in H2’16 coming in higher than H1’16 as they expect oil palm product prices to strengthen further.
In fact it is expected that Presco would be riding on the foreign exchange under pressure in the autonomous market where import of palm oil and other items on the list of 41-items banned from official foreign exchange window are meant to be funded.

Related to this scenario also is the fact that the Naira has further depreciated by over 20% in the parallel market since beginning of H2’16, thereby making importers of competing products less competitive price-wise against Presco. But at this the company may even have further upwards price hike which will drive up topline.

Analysts’ valuation and forecast

Beyond the impressive H1’16 result most investment analysts are expecting sustained resilience in the second half even as Nigeria’s economy slides through recession.
It appeared that most analysts’ forecast for H1’16 results of Presco were beaten and the positive surprises may have forced some of them to be, rather, bullish on the H2’16 to full year (FY’16) results.

According to analysts at Vetiva Capital Limited, a Lagos based investment house, ‘‘after updating our model to reflect higher oil palm prices, we revise our FY’16 revenue forecast to N15.3 billion (Previous: N14.2 billion).

‘‘Whilst we note Foreign Exchange loss of N717 million incurred in Q2 period (following 42% devaluation in official exchange rate to NGN285/USD), and the tendency for more FX losses in H2’16 given further depreciation since Q2 (Current rate: NGN320/USD), we are confident that FY’16 earnings will remain very robust as the higher product pricing continues to buffer all profit lines, even as OPEX (operating expenses) containment remain efficient.
‘‘In all, we revise our FY’16 profit after tax, PAT, (excluding revaluation gains) to N4.7 billion (Previous: N2.9 billion). Our target price is also revised to N46.72 (Previous: N43.38)’’.

Management Pulse

Following the deteriorating economic environment at the beginning of 2015 the Management of Presco Plc said that it envisaged increased challenges in market and macro-economic conditions in 2015 than was the case in 2014 and that its response will be to concentrate on efficiencies in the management of operations across the value chain and continue with its planned long-term expansion programmes.

Addressing the shareholders earlier this year on the 2015 full year results, the chairman, Mr. Pierre Vandebeeck, stated: ‘‘We are sailing in the right direction, making progress in all facets of our business and continually pushing forward in all fronts to sustain and further enhance our leadership position in our industry.

‘‘2016 will see further expansions in our oil palm plantation hectarage, additional investments in processing facilities and support infrastructure and commencement of developments in the 14,000 hectare new project site in Orhionmwon Local Government Area of Edo State for oil palm and rubber’’.
Presco is a fully integrated agro-industrial establishment with oil palm plantations, palm oil mill, palm kernel crushing plant and vegetable oil refining plant. It is at present the only one of such in Nigeria.

The company specialises in the cultivation of oil palm and in the extraction, refining and fractionation of crude palm oil into finished products.
Presco is a subsidiary of Siat s.a., a Belgian agro-industrial company specialized in industrial as well as smallholder plantations of tree crops, mainly oil palm and rubber, and allied processing industries such as palm oil mills, palm oil refining/ fractionation, soap making and crumb rubber factories.


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