Presco Plc’s near-term earnings outlook is coming under pressure from rising agricultural and energy costs, weaker revenue growth and the dilutive impact of its recent rights issue, prompting CardinalStone Research analysts to downgrade the oil palm producer from BUY to HOLD.
The research house has revised its 12-month target price for Presco to N2,140.25, with the new valuation reflecting what analysts see as a period of earnings friction before the company’s aggressive expansion programme begins to deliver stronger production volumes and cash flows.
Rather than a deterioration in Presco’s long-term investment case, the downgrade points to a mismatch between the company’s expansion ambitions and the near-term pressures weighing on margins.
CardinalStone expects Presco’s core EBITDA and EBIT margins to decline to 61.6 percent and 56 percent, respectively, in 2026, before recovering in 2027 as new production and processing capacity comes on stream.
A major pressure point is the sharp increase in Presco’s operating costs.
Operating expenses rose 11.4 percent year-on-year to N75.8 billion, with transportation costs increasing 32.5 percent as diesel prices surged by more than 133 percent year-to-date.
Higher fertiliser costs are also adding pressure, with geopolitical tensions in the Middle East contributing to increases in global urea and other agricultural inputs.
For a vertically integrated agribusiness such as Presco, the cost escalation creates a direct challenge to margins, particularly when selling-price growth is constrained.
CardinalStone expects these pressures to weigh on earnings through 2026, although it projects margin stabilisation and recovery from 2027 as additional greenfield production comes into operation.
Ghana, smuggling weigh on revenue growth
Revenue growth has also been constrained by developments in both Presco’s Nigerian and Ghanaian operations.
In Ghana, global crude palm oil (CPO) benchmark prices have increased by 18.1 percent year-to-date to $1,089 per tonne, but the appreciation of the Ghanaian cedi has limited the benefit to Presco.
The cedi appreciated 26.3 percent year-on-year against the US dollar, reducing domestic CPO prices because Ghanaian pricing is linked to import parity.
The stronger local currency has consequently made imported and smuggled cooking oil more competitive, putting pressure on domestic market pricing.
In Nigeria, CardinalStone identified unrecorded product smuggling through land borders as another constraint on revenue growth.
The reduction in Nigeria’s CPO import tariff from 35 percent to 28.75 percent has further increased competitive pressure on locally produced palm oil.
Presco’s recently completed rights issue has strengthened the company’s funding capacity for its expansion strategy, but the resulting share dilution has also affected near-term earnings per share considerations.
This dilution, combined with softer top-line growth and higher operating costs, has contributed to CardinalStone’s decision to move the stock from BUY to HOLD.
Debt falls 62% as Presco strengthens balance sheet
One of the strongest positives in the research note is Presco’s rapid reduction in leverage.
The company reduced total debt by 62.3 percent in the first half of 2026 to N119.5 billion, from N317.3 billion at the end of 2025.
The deleveraging was supported by proceeds from its 2025 rights issue and internally generated cash.
Management is also considering further debt reduction from available cash reserves, including the potential redemption of its N82.9 billion bond series.
N77m Ato mill holds longer-term upside
Presco’s investment case remains anchored on the substantial expansion of its production and processing capacity.
The company is developing the $77 million Ato processing mill, with the first phase, which has a processing capacity of 60 tonnes per hour, targeted for completion in the fourth quarter of 2026.
Further phases over the next four to five years are expected to increase capacity to 180 tonnes per hour.
The expanded facility is expected to process fresh fruit bunches from Presco’s Saro, Nsadop and Boki greenfield acquisitions.
