April 20, 2017/Vetiva Research
- FY’16 PAT surge on gains on revaluation of biological assets
- Normalized PAT up significantly amidst strong CPO prices
- Mature oil palm plantation at 15,356ha at year end (FY’15: 11,587ha)
- Board of Directors declares DPS of N1.50
- Target price revised to N59.45 (previous: N53.49)
Strong FY’16 earnings bloated by revaluation gains
PRESCO reported FY’16 PAT of ₦21.7 billion, a significant improvement from the ₦2.5 billion reported in FY’15.
The notable surge in bottom line was largely driven by a ₦24.9 billion revaluation gain on biological assets (FY’15: ₦1.1 billion).
Excluding the revaluation gains however, earnings would still have come in very strong, with PBT doubling y/y to c.₦6.3 billion despite recording FX loss of ₦1.4 billion.
In line with industry trend, the y/y earnings performance was majorly buoyed by strong palm oil price over the course of the year following the inclusion of Palm kernel/Palm oil products/Vegetable oils on the list of 41-items restricted from accessing FX from the interbank market.
On the back of the decent performance, the Board of Directors proposed a final dividend/share of ₦1.50 (FY’15: ₦1.00), in line with our estimate but ahead of Consensus’ ₦1.00.
Increased mature plantation to support volume growth
In our earnings note on OKOMUOIL (FY’16 earnings surge on strong product pricing), we highlighted that given the recent convergence of interbank and parallel market rates, CPO producers would have less leeway to raise prices going forward as the moderation in rate makes imported CPO less expensive.
We foresee a more stable FX parallel market rate in 2017, supported by the recent CBN interventions in the FX market as well as the more positive fiscal outlook.
Coupled with the relatively bearish outlook on global CPO prices(down 20% ytd), we estimate a low single digit rise in local CPO prices in 2017 (2016: c.55%).
However, we expect a much stronger Fresh Fruit Bunch (FFB) harvest in FY’17 (down 3% in FY’16).
Our optimism is buoyed by the significant increase in PRESCO’s mature oil palm plantations reported at 15,356ha for the year (FY’15: 11,587ha), ahead of our expectation of 12,224ha.
We expect this to buoy volume growth in FY’17, and forecast FY’17 revenue at ₦20.7 billion (Previous ₦18.1 billion).
Valuation revised higher on improved earnings outlook
Buoyed by our improved outlook on volume, we foresee another strong performance by PRESCO in 2017.
Without considering possible revaluation gains/losses from biological assets, we forecast FY’17 PAT at N6.0 billion. After updating our model, we revise our target price higher to ₦59.45 (Previous: ₦53.49). We have a BUY rating on PRESCO.