Presco Plc has reported a pre-tax profit of N20.781 billion for Q2 ending June 30, 2024, representing a 159.77% year-on-year (YoY) increase.
This performance takes the H1 2024 pre-tax profit to N50.439 billion, beating the 2023 full-year pre-tax profit by 0.86%.
Also, the company’s Q2 2024 financial statement reveals that the profit growth was fueled by a significant increase in revenue driven by the sales of crude and refined products, outpacing the growth in cost of sales.
In Q2 2024 revenue surged by 74% year-on-year to N45.474 billion, bringing H1 2024 revenue to N88.02 billion, which is about 86% of the full-year revenue for 2023.
Key highlights (Q2 2024 vs Q2 2023)
- Revenue: N45.474 billion +73.86% YoY
- Cost of sales: N13.685 billion +30.51% YoY
- Gross profit: N31.790 billion +102.86% YoY
- Administrative expenses: N7.582 billion +34.41% YoY
- Selling & Distribution expenses: N630 million +79.68% YoY
- Exchange Losses: N1.710 billion +1,127.02% YoY
- Operating profit before finance income and finance cost: N22.725 billion +130.43% YoY
- Finance cost: N2.139 billion +14.32% YoY
- Profit after tax: N14.82 billion +189.44% YoY
- Earnings per share: N14.82 +189.45% YoY
Commentary
The 159.77% YoY increase in pre-tax profit indicates strong profitability and effective cost management, especially with revenue growing faster than the cost of sales.
- The ability to grow revenue faster than the cost of sales indicates efficient cost management and operational effectiveness, which is crucial for maintaining healthy profit margins. The Gross profit margin of 69%, EBITDA margin of 50%, pre-tax margin of 46% and net profit margin of 33% recorded in Q2 2024 are impressive and healthy.
- The high margins across different stages of profit calculation suggest that the company is not only generating substantial revenue but also retaining a significant portion of it as profit through efficient operations and strategic cost controls. Also, it could suggest that Presco Plc has a strong competitive position in the market, likely benefiting from economies of scale, strong demand for its products, and effective pricing strategies.
- Additionally, surpassing the full-year 2023 pre-tax profit within the first half of 2024 suggests that the company is on track to outperform its previous year’s financial and possibly a record-breaking year.
However, the company recorded an exchange loss of N1.7 billion in Q2, reflecting a substantial 1,127% year-on-year increase. This exchange loss moderated the H1 2024 exchange gain to N3.66 billion, down from N5.4 billion recorded in Q1 2024.
While the company still managed to record an exchange gain for H1 2024, the reduction from Q1 to Q2 indicates significant exposure to currency fluctuations.
Also, the company recorded high-interest expenses of N2.139 billion in Q2, bringing total interest expenses for H1 2024 to N4.418 billion.
Despite these rising interest expenses, attributed to its substantial loan book, Presco Plc is generating sufficient earnings to cover these costs effectively. This is evident from its healthy interest coverage ratios of 10.63 in Q2 and 12.33 in H1 2024.
These strong interest coverage ratios, combined with significant earnings and revenue growth, are likely to foster a positive outlook among investors, leading to increased investment and enhanced overall investor sentiment.
Last year, the share price gained 40.4% year-to-date (YtD), and this year it has risen by 98.5% YtD, ranking it seventh on the NGX for year-to-date performance.
The stock offers a dividend yield of 6.87%, the highest in its sector, based on the last annual dividend per share of N26.30 (comprising an interim dividend of N2 and a final dividend of N24.30).
Over the past five years, Presco has consistently paid dividends. With the profit after tax for H1 2024 already surpassing the full-year 2023 profit after tax, it is reasonable to anticipate that the company will sustain or even exceed the dividends paid out in 2023, starting with an interim dividend for H1 2024.
Overall, Presco Plc’s strong performance, as reflected in its healthy profit margin, impressive interest coverage ratios and significant gains in share price, coupled with its high dividend yield and consistent dividend payments, positions it as a robust investment option.
The company’s ability to manage FX volatility/loss, and high-interest expenses effectively while achieving substantial earnings growth is likely to attract further investor interest and confidence, enhancing its overall market appeal.