Presco: Expect impressive full year close despite off season slowdown

Despite off season slowdown in the third quarter, Presco Plc is one of the few companies from which the most improved corporate earnings reports could reach shareholders for the 2021 trading. Profit was up a clear 175 percent year-on-year to N13.8 billion at the end of the third quarter.

The oil palm and rubber producing company generated an after tax profit of N3.6 billion for the third quarter, down from the N6.7 billion achieved in the second quarter.

Uneven profit performance across quarters is a reflection of seasonal effects. The company’s critical earnings period lies in the first half. A further slowdown in revenue and profit is therefore quite likely for the company in the final quarter.

Increase in cost of sales is the main factor for the lower profit figure in the third quarter than the second. Input cost changed direction from a slowdown in the second quarter to an upsurge of 124 percent quarter-on-quarter in the third quarter.

The high rise pushed up the year-on-year increase in cost of sales from less than 12 percent at the end of June to 53 percent at the end of September. Input cost claimed 31 percent of sales revenue at the end of the third quarter, rising from 23 percent at the end of half year.

Despite the slowdown, the company’s third quarter profit figure still represents a quarter-on-quarter upsurge of 470 percent.Presco doubled its 2020 full year profit of N5 billion at half year in 2021 and the nine-month profit figure has climbed to 267 percent of the 2020 figure.

The company’s outstanding earnings growth in 2021 is a combination of a major upswing in sales revenue and a considerable slowdown in costs.

Sales revenue kept accelerating across quarters in the year – from 48 percent quarter-on-quarter in the first quarter to 67 percent in the second quarter and further to 134 percent in the third quarter.

From close to N8 billion in the first quarter, the company generated sales revenue of N13.5 billion in the second quarterand N12.8 billion in the third. The closing sales revenue figure of over N34 billion for the nine-month period has already beaten the preceding full year turnover of a little below N24 billion.

The turnover figure at the end of the third quarter represents a year-on-year growth of 81 percent – more than four times the increase of 21 percent recorded at the end of the preceding financial year.

Revenue growth accelerated year-on-year from 59 percent the company recorded at half year. The strongest revenue growth in years is expected from the company’s 2021 operations.

Presco reinforced the strong growth in turnover with a low cost advantage that stretched out margins. The main cost advantage was achieved in cost of sales, which grew by 53 percent year-on-year to N10.7 billion at the end of September 2021, well below the sales revenue growth of 81 percent.

The resulting cost saving enabled the company to nearly doublegross profit at over 97 percent at the end of the third quarter to N23.5 billion from the 81 percent growth in turnover.

A slowdown in operating cost plus a gain of N600.5 million in biological assets helped to push up operating profit by 132.5percent to over N18 billion at the end of the review period.  

A drop of 55 percent in finance expenses to N545 million over the review period added further to the cost savings that marked the company’s operating performance in the year.

Presco closed the third quarter operations with earnings per share of N13.78 compared to N5.03 per share in the same period in 2020. The company earned N5.26 per share at the end of 2020 and paid cash dividend of N2 per share to shareholders.