Presco Nigeria Expansion Drive pays off as Earnings Surge

Presco plc, a Nigerian palm-oil producer, is reaping the benefits of aggressive expansion as it ended 2014 with a surge in profits.

For the year ended December 2014, the company’s net income increased by 95.48 percent to N2.60 billion from N1.33 billion the previous year. Sales increased by 7.68 percent to N9.13 billion as the company is ramping up plants to boost production.

Earnings per share (EPS) spiked by 107.75 percent to N2.68k in 2014, from N1.30k in 2013.

“We believe topline growth in Q4 and Q1 2015 can be attributed to Presco increasing volumes while margin expansion may have been supported by lower COGS per unit through the year,” said Kingston Nwosu, equity research analyst with FBN Capital, in an emailed statement to BusinessDay.

“Also, it appears Presco is benefitting from its expansion programme and acquisition of industrial assets earlier in 2014,” said Nwosu.

The company is cost effective as cost of sales reduced by 17.10 percent to N3.2 billion in 2014 from N3.86 billion in 2013. Cost of sales ratio reduced to 35.04 in 2014 compared with 45.51 percent the previous years.

This impressive cost margins culminated to improved profit margins as gross margins increased to 64.95 percent in 2014, as against 54.33 percent in 2013.

Gross profit moved to 28.46 percent, which means the company is efficient in managing direct costs attributable to projects. Net margin, a measure of efficiency and profitability, jumped to 27.47 percent in 2014 from 15.68 percent in 2014.

Presco doubled processing capacity at its palm-oil mill to 70 metric tons an hour in 2013, and is expanding its refinery to 300 tons a day from 100. It already has 11,760 seedlings planted.

The company is planting 1500 hectares by 2020, a further boost to future earnings.

Presco is also diversifying into rubber and cocoa to stave off the effects of glut in palm oil that erodes earnings. Presco total assets increased by 6.98 percent to N34.94 billion in 2014, as against N32.66 billion the previous year.

Return on equity (RoE) increased to 13.03 percent in 2014 from 7.65 percent in 2013, while the return on assets (RoA) jumped to 7.44 percent in the review period as against 4.07 percent the previous year.

The increased return on investment (RoI) means the company is utilising shareholders resources in generating higher profit.

Presco supplies palm oil to food and consumer-products companies operating in Nigeria, including Nestle SA, Unilever, PZ Cussons plc and Dangote Industries Limited.

The company’s share price closed at N28.98 on the NSE, while market capitalisation was N27.54 billion.