CardinalStone Downgrades Presco to HOLD Following Near-Term Earnings Squeeze

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CardinalStone research analysts have revised their 12-month Target Price (TP) for Presco Plc (NGX: PRESCO) to ₦2,140.25, downgrading their investment rating from BUY to HOLD.

The rating change reflects near-term earnings friction from muted H1 2026 top-line growth, elevated agricultural and energy input costs, and share dilution following the recently completed rights issue.

Despite short-term margin contraction, Presco’s ongoing strategic capital expenditure—highlighted by its 22,500-hectare Saro Oil Palm acquisition and the ongoing construction of the Ato processing mill—supports a strong medium-to-long-term volume throughput and cash flow expansion case.

Core Drivers of the Research Note

Revenue Drag in Ghana & Domestic Import Protection Pressure

• Ghana Operations: Despite global CPO benchmark gains (+18.1% YTD to $1,089/ton), Presco’s Ghanaian segment suffered from a 26.3% YoY appreciation of the Ghanaian Cedi against the USD. Because Ghanaian CPO pricing is tied to import parity, the stronger cedi lowered domestic prices, making imported and smuggled cooking oil cheaper.

• Nigerian Segment: Revenue growth was constrained by unrecorded product smuggling across land borders and a regulatory drop in Nigerian CPO import tariffs from 35.00% to 28.75%.

Input Cost Inflation and Operating Margin Compression

• Cost Pressures: Operating expenses surged 11.4% YoY to ₦75.8 billion. Transportation costs jumped 32.5% YoY as national automotive gas oil (diesel) prices escalated over 133% YTD, while geopolitical conflicts in the Middle East drove up global urea and fertilizer input costs.

• Margin Impact: Core EBITDA and EBIT margins are projected to contract to 61.6% and 56.0% respectively for FY 2026, before stabilizing and recovering in FY 2027 as new greenfield throughput comes online.