Presco Plc FY 2019 and Q1 2020 Results – Earnings Decline on Revenue and Finance Cost Pressures


June 2, 2020

By CardinalStone Research

Presco Plc (PRESCO) recently published its FY’19 (audited) and Q1’20 results. The company recorded PAT declines in FY’19 (-10.4% YoY) and Q1’20 (-15.9% YoY). Following the release of the FY’19 result, the company declared a dividend of N2.00 per share (implied dividend yield of 4.8% on current price) that is slightly justified by its strong cash balance in FY’19.

Highlights of FY’19 audited results

  • PRESCO’s revenue fell by 7.6% YoY to N19.7 billion in FY’19, following a decline in the average unit selling price of crude palm oil (-14.2% YoY to N409,271/tonne). Passthrough from top-line weakness, as well as a 28.4% YoY increase in cost of sales, resulted in a 10.0ppts contraction in the company’s gross margin to 64.5%. Pressures on the cost of sales front largely reflected a surge (c.3.0x) in expenditures related to the upkeep of mature plantings, harvesting, and laboratory expenses
  • Operating margin also declined by 16.0ppts YoY to 31.9% as higher SGA expenses (+14% YoY to N6.8 billion) added to overall cost pressures. Further breakdowns reveal that administrative expense was bloated by higher consultancy fees, transport costs, and exchange rate losses
  • Net finance cost surged by 59.3% YoY to N2.1 billion after the company increased its borrowings by N21.9 billion in the period
  • PRESCO recorded a revaluation gain of N1.8 billion in FY’19 (versus a revaluation loss of N2.6 billion in 2018). The revaluation gain was driven by higher CPO prices in Q4’19 (PRESCO utilizes assumed “CPO Malaysian Palm Oil price” in its assessment of fair value) and a decline in risk adjusted discount rate (-2.9ppts to 16.76%) used in the fair value measurement of biological assets

Highlights of Q1’20 unaudited results

  • PRESCO’s gross margin contracted by 1.5 ppts to 78.1% in Q1’20, following a 2.4% YoY decline in revenue and a 4.6% YoY rise in cost of sales to N5.4 billion and N1.2 billion respectively.
  • Effective tax rate was 6.6 ppts higher YoY at 23.5% in the quarter, but materially lower than its 2019 effective tax rate (36.7%) and statutory tax rate of 30%.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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