Rating: Hold
Current Market Price: N72.60

Latest Dividend: N2.00
Year High: N78.90
Year Low: N68.00
Fair Value: N86.94
Equity Analyst: Tunde Segun Jeariogbe

Key Investment Ratios

• In this report, we observed the half-year financials of Presco Plc for the period ended 30^th June 2021; compared same with those released in the corresponding period of 2020 to establish a growth pattern.
• We observe that despite improvements in profit from 2019 through to 2020 full-year, the management paid N2.00 dividend per share, which reduced the growth expectations and valuation.
• While comparing the released numbers we noticed that assets value improved marginally over that of the comparable period of last year, while liability recorded a decline, despite which the income statement showed an outstanding performance when compared to that of 2020.
• See below detailed analysis of the half-year numbers, as compared with those of 2020.

Company figures

• The Turnover for the half-year stood at N21.46 billion, same as 59.48% above the turnover in the similar half-year of 2020
• Cost of Sales grew against the comparable period by 11.75% to stand at N4.93 billion as against N4.41 billion in the comparable period of 2020
• Operating Profit soared above comparable period by 102.73% at the current estimate of N13.38 billion against N6.60 billion in the similar quarter in 2020
• Operating Expenses grew above comparable period’s by 54.07% to stand at N3.20 billion against the previous N2.07 billion
• Finance Cost through the first six (6) months of 2021 is valued at N440.14 million, this is 47.08% below the N831.79 million reported at the end of the 2020 half-year business cycle
• Profit before Tax jumped above the similar period by 124.32% at the current estimate of N12.94 billion against N5.77 billion in 2020 H1
• Having taken care of Tax Expense, a total of N10.12 billion was finally reported as the half-year profit, this is far above the comparable quarter’s profit by 130.68%
• See below for a detailed income statement for the period.

• Current Asset was valued at N23.07 billion, against N20.33 billion at the end of the 2020 half-year. The difference between both valuations is the same at 13.45%.
• Similarly, Non-Current Assets is valued at N51.80 billion, a marginal 3.88% higher than the N49.86 billion quoted in its 2020 half-year result.
• Meanwhile, Current Liabilities dipped by 22.10% at N16.97 billion against the previously reported N21.79 billion in the 2020 half-year.
• On the other hand, Non-Current Liabilities grew by a marginal 3.64% to N16.71 billion, compared to N16.12 billion in 2020.
• Net Assets is therefore estimated at N41.17 billion, the same as 27.57% growth over the 2020 Net Asset estimate of N32.27 billion.
• Also, Retained Earnings improved by 29.36% to N39.64 billion, versus the N32.27 billion posted at the end of the 2020 half-year.

Financial Strength/Solvency Ratios

• Debt Ratio is currently estimated at 45% same as 16.69% below the estimate in the similar period of 2020. This implies that Total Liabilities is the same as 45% of Presco’s Total Assets.
• Total Debt to Equity was equally estimated at 81.83% as against 117.50% estimated in the comparable quarter. This simply implies that more debt was used in servicing the company’s assets at the end of the period.
• It was established that Equity is the same as 55% of Presco’s Asset Value, a significant drop when compared to the 45.98% achieved in the similar period of 2020.
• Going by the beta value (0.20), which was far below unity, we can safely conclude that shares of Presco do not enjoy frequent patronage on the exchange, compared to industry peers

Profitability Ratios

• EBITDA Margin is currently estimated at 62.31%, the same as 27.12% over the 49.06% estimated for the first six months of 2020.
• Profit before Tax was estimated at 60.31% of the Turnover for the period, against the 49.06% achieved at the end of 2020 half-year.
• Cost of Sales is 23.00% of the Turnover figure, 29.93% below the 2020 half-year estimate.
• Return on Equity stood at 24.59%, against 13.60% of 2020.
• See below for detailed financials:

Efficiency Ratios

• Operating Expenses to Turnover value is the same as 14.93%, which is a 3.39% improvement in efficiency over the 15.45% estimated from the 2020 half-year financial indices.
• Turnover to Total Assets Ratios stood at 28.67%, against 19.17% achieved in 2020. financials, it is a 49.53% drop in efficiency
• See below for detailed efficiency ratios.

Investment/Valuation Ratios

• At the end of the half-year period, the management earned N10.13 on every unit of Presco shares on the exchange, representing 130.68% above the N4.39 earned at the end of the 2020 half-year.
• Based on our half-year adjusted PE/Ratio, the price of Presco shares as of the time this report was released to investors was found to replicate the EPS 7.01 times, that is, the P/E-Ratio is 7.01x against 10.81x in the similar period of 2020.
• The said earnings per share is a 14.26% yield of the current market price of Presco at the released date, this is 35.13% below the yield in the 2020 half-year.
• Book Value per share shows an over-valued position at N41.18, against the previous estimate of N9.25, this is clearly below the current market price on the exchange and our intrinsic value of Presco’s shares.
• Further confirming this position is the Price to Book value at above unity in the current period as in the estimate in the corresponding quarter.

Valuation

While valuing Presco shares, we noticed that the unchanged dividend payout over the previous financial year, despite the growth achieved is a major clause to our valuation metrics. Although, this could be seen as the company’s growth strategy, which surprised our valuation metrics which focused more on investors’ expected returns. Thus, we have fairly valued each unit of Presco Plc share price for N86.94, thus, considering the intrinsic value to the current market price we Rated it a Hold.