Presco Beats Market as Robust Earnings Underpin Investors’ Interest

Robust earnings reported by oil Palm firm Presco Nigeria Plc as well as an attractive valuation and expectation of dividend declaration have rekindled investors’ interest in the stock as it outperforms the overall market and inflation, according to a latest report by Chapel Hill Denham Limited.

Presco’s share price has rallied by 38.45 percent and 107 percent over the last 12 months (LTM), outperforming the NGX ASI rally of 31.2 percent year to date (YTD) and 87 LTM, according to data from Chapel Hill Denham.

The research firm noted in the report that the foreign exchange illiquidity and persistent deprecation of the Naira that made it difficult for importers to access foreign currency to bring in the product paved the way for Presco to raise prices.

It is interesting to note that government policies have been a boon for Presco as the  closure of land borders discouraged stiff competition and strengthened earnings.

For the first three months through March 2024, Presco’ revenue rose by 94.10 percent to N42.54 billion from N21.91 billion as at March 2023.

The growth at the top line (sales) is supported by an increase in the demand for locally produced palm oil along with an uptick in the price of crude palm oil (CPO).

The price of CPO in Nigeria rose by 8 percent to 1.34m /ton in February 2024 from 1.23m in January 2024, according to the Nigerian Institute for Palm Oil Research.

Analysts at Chapel Hill Denham forecasts that revenue will grow by 92.10 percent year on year (YOY) by the end of the 2024 financial year.

Net income jumped 141.50 percent to N24.05 billion in the period under review from N9.96 billion the previous year.

Though the Agric firm is beset by rising cost of production brought on by foreign exchange scarcity and currency volatility, the company saw earnings before interest, taxation, amortization, and depreciation increase in March 2024.

With the announcement of a final dividend of N24.30 and a mouth watery dividend yield, it is expected that investors will swoop on the company’s shares.

An attractive dividend yield of 10.14 percent as of May 17, 2024 is more compelling than the NGX-ASI and NGX 30 dividend yields of 3.20 percent and 3.30 percent respectively.

However, the downside risk to Chapel Hill Denham outlook is increased competition stemming from stability in the foreign exchange market, leading to an increase in imported CPO through Nigeria’s porous land borders.

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