Presco Plc Maintained Outperform Rating in Q3 2021 Results Review

December 3, 2021/Proshare

by FBNQuest Research 

Photo Credit: Nairametrics

EPS forecasts over the ’21-23f period raised by an average of 19%

Presco reported strong Q3 ’21 results with earnings of NGN3.6bn up 470% y/y. Earnings growth was driven by sales (up +134% y/y to NGN12.8bn) and a gross margin expansion of +205bps y/y to 54.8%. Compared with our forecast, earnings beat by 13% as a strong topline performance was partially offset by negative surprises in gross margin and opex. Our channel checks reveal that prices were raised significantly during the quarter and chiefly contributed to topline growth. As such, we have raised our sales estimate by c.35% on average over the ’21-23f period.

However, our upward adjustment for the topline is partially offset by an average reduction of over 900bps to our gross estimate and a 23% average increase to our opex forecast over a similar period. Ultimately, our EPS estimate is up 19% on average. From a strategy viewpoint, in Q3, Presco’s board approved a proposal to offer to acquire 100% of Siat Nigeria Limited (SNL) for a financial consideration of NGN21.0bn. SNL is a related party and operates two oil palm estates in Rivers State, with a total planted area of 15,215 hectares.

For FY’22, SNL management expects to report its first profit, guiding to revenues and earnings of NGN15.8bn and NGN1.1bn respectively. Upon conclusion of the transaction, we estimate sales and earnings for the consolidated entity of NGN59.4bn and NGN15.0bn respectively vs. NGN43.7bn and NGN13.9bn pre-acquisition. Our new price target of NGN130.0 is up 19% and indicates a potential upside of 48% from current levels. Therefore, we retain our Outperform rating on the stock. Ytd, Presco shares are up 22.3% vs. the ASI’s 4.9%. 

Presco delivered strong Q3 ’21 results; PAT up 470% y/y to NGN3.6bn

Presco posted record sales growth for Q3. Sales and PAT of NGN12.8bn and NGN3.6bn advanced 134% y/y and 470% y/y respectively. Topline growth and a gross margin expansion of +205bps y/y to 54.8% more than offset a 43% y/y rise in operating expenses. On a q/q basis, sales and PAT declines of -6% q/q and -42% q/q respectively were primarily down to seasonal trends. Compared with our estimates, Q3 sales and PAT beat by 88% and 13% respectively. Presco proposed a surprise interim dividend of N1.00, which works out to a yield of c.1%.

Proshare Nigeria Pvt. Ltd.

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