Analysts Cut Presco Outlook On Declining Stock, Poor 2018 Result
By CHUKWUMAH KELECHUKWU.
Analysts at the FBNQuest Research have cut earnings outlook of Presco Plc, specialty fats and oils producers, after the stock shed -22 percent in price valuation coupled with poor financial performance for the period ended December 31, 2018.
According to the researchers, outlook of the Benin, Edo State based indigenous company points to weak earnings and likelihood of further decline in the company’s full year, 2019 earnings.
The stock has so far shed -22 percent in price valuation, worse than the Exchange All Share Index -5 percent drop since January 2019 and worse still, higher than inflation rate at 11.40 percent as of May.
The 2018 full financial result released last weekend showed that turnover declined to N21.344billion in 2018, down from N22.365billion recorded in 2017as company sales declined -6 percent year-on-year to N5.1billion.
Profit after tax (PAT) came down to N4.284billion in 2018 from N5.726billion previous year just as profit before tax (PBT) also dropped to N6.321billion,down from N7.815billion driven by a significant loss on the biological asset revaluation line of –N3.0bn.
In Q1 2019, while sales of N5.5billion fell by -17 percent year-on-year, PBT and PAT of N2.6billion and N2.1bn declined by around -25 percent year-on-year and -18 percent year-on-year respectively.
“Compared with our estimate, Q1 2019 earnings of N2.1billion, which declined by -18% y/y, missed by around 25%. Following the firm’s earnings conference call, we conclude that topline pressure is very likely to persist through the year,” the researchers concluded.
However, the stock gained 4 percent or N2.00 to close at N52.00 per share on Monday, up from opening price of N50.00, defying its poor earnings outlook and a negative result that offset improvements in production and operating costs.
Stockbrokers attributed the price gain to a N2.00 dividend to shareholders proposed by the company’s board of directors, and pointed out that management remains quite confident of retaining its blue chip customer base.
Crude palm oil (CPO) accounted for around 42 percent of Presco’s sales in Q1 2019 and Q4 2018. Competition is less fierce for other palm oil by-products such as RBDO, stearin and olein.
“Given the importance of CPO to Presco’s profits, we have cut our earnings forecasts by around –27% over the 2019-2021E period to reflect our weaker outlook for the company. Our new price target of N48.6 is down by a similar magnitude,” the FBNQuest Researchers wrote in an emailed report.
The federal government has continued to show support to local producers of palm oil. Only last week, a presidential directive was issued to the Central Bank of Nigeria to blacklist firms involved in smuggling and dumping of palm oil in the country.
This presidential directive however could turn the table for the Benin, Edo State based oil palm company whose earnings per share for year 2020 is seen declining by about -27 percent according to the analysts.
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