Presco Plc (PRESCO) published its Q2-22 unaudited financials on Friday (July 29) reporting a standalone EPS growth of 12.7% y/y to NGN7.59 in Q2-22 (Q2-21: NGN6.73). Accordingly, H1-22 EPS stood at NGN13.47 (+33.1% y/y). The growth in EPS was driven by stellar growth in revenue amid higher net finance cost.
Revenue grew by 63.2% y/y in Q2-22 (H1-22: +94.3% y/y), primarily driven by the (1) rally in CPO prices (Average CPO price: USD1,494.62/mt in Q2-22 vs USD1,016.00/mt in Q2-21 | USD1,210.17/mt in H1-22 vs USD588.54/mt in H1-21), induced by the production shortfalls in Indonesia and Malaysia and (2) higher volumes in the period. On a q/q basis, revenue increased by 12.7% to NGN22.10 billion in Q2-22 (Q1-22: NGN19.61 billion).
Gross margin contracted by 55bps to 74.2% in Q2-22 (Q2-21: 74.7%) due to a faster growth in cost of sales (+66.8% y/y) relative to revenue (+63.2% y/y). We attribute the higher costs to the impact of higher crude oil prices on (1) energy costs (Average diesel prices in Q2-22: NGN686.44/ litre vs Q2-21 NGN239.48/ litre), and (2) the cost of fertilizers.
Consequently, EBITDA (-469bps) and EBIT (-1087bps) margins declined to 58.7% and 52.6%, respectively, further dragged by a 204.0% y/y increase in operating expenses – administrative expenses (+221.5% y/y to NGN4.70 billion vs NGN1.46 billion in Q2-21), and Selling and Distribution expenses (+76.9% y/y to NGN0.36 billion vs NGN0.20 billion in Q2-22.).
Further down, PRESCO’s net finance charges increased significantly by 1549.0% y/y to NGN2.39 billion (Q2-21: NGN0.15 billion), driven by higher interest charges. As of H1-22, the company’s interest paid increased by 167.2% to NGN3.87 billion (FY-21: NGN1.45 billion), reflective of the increased debt (H1-22: NGN65.41 billion vs FY-21: NGN56.71 billion) in the period.
Overall, the company recorded a PBT growth of 9.2% to NGN9.22 billion in Q2-22 (Q2-21: NGN8.44 billion). Following a tax expense of NGN1.63 billion, profit after tax printed NGN7.59 billion (Q2-21: NGN6.73 billion) translating to a 12.7% y/y growth.
Comment: PRESCO’s Q2-22 performance was impressive in our view as the company benefitted from the significant rally in CPO prices amid significant pressures broadly facilitated by the higher crude oil prices. We remain optimistic about the company’s 2022FY performance, as the upsides favouring Nigerian CPO planters such as tight border controls, FX liquidity challenges and the attendant impact on importers, and government support remain existent and should benefit PRESCO’s earnings. Also, we view as value accretive to profitability the acquisition of SNL. Our estimates are under review.
