Income tax expense grew significantly to N593m from N27m in the prior year, worsening the loss after tax. Sequentially, sales declined by -28.4% q/q. The pre-tax and after-tax losses in Q4 compare with PBT and PAT of N3.3bn and N2.3bn in Q3 2015.
Furthermore, sales of N10.4bn grew by 14.3% y/y while PBT and PAT declined by -46.7% y/y and -55.0% y/y to N4.2bn and N2.3bn respectively. Restatement of the prior year’s result by the company resulted in a significant upward review to biological assets gains (around N4.4bn) and contributed to the y/y decline in profits.
Back to the FY 2015 results, the y/y fall in PBT was due to gross margin contraction of -148bps y/y to 63.5%, an -81.6% y/y decline in biological assets revaluation gains as well as a 95% y/y rise in net interest expense. Total loans amounting to N4.6bn were sourced from a combination of local banks and the CBN, in order to fund its rubber expansion programme and other capex needs. A higher effective tax rate of 44.9% (vs 34.3% in 2014) culminated in a 55% y/y decline in PAT to N2.3bn
Similarly, FY sales and underlying PBT were in line with our forecasts but underlying PAT missed by -10%. Presco’s FY sales were slightly behind consensus sales forecast of N10.5bn. Its PBT and PAT were ahead of consensus by 26% and 5% respectively. Proposed dividend of N1.00 implies a yield of 2.8%.
Palm oil prices gained 1.5% in Q4 but declined by -22.1% in 2015. We suspect that the decline in global prices as well as Presco’s aggressive planting supported topline growth during the year. The company’s total land area increased by 18% to 16,650ha while mature palm trees increased by 46% to 15,356ha in 2015.
The stock has gained +8.2% ytd, outperforming the NSE ASI and competitor, Okomu Oil, by 18.6% and 12.4% respectively. At current levels, Presco trades on a 2015 P/E multiple of 15.6x for a 2016 EPS growth of 9.5%.