Flour Mills: 9M’16 result tracks ahead of analysts’ estimates

Last week, the Nigerian Stock Exchange (NSE) published Flour Mills of Nigeria Plc (FMN) results for the nine months period ended December 31, 2016. Flour Mills Of Nigeria Plc recorded revenue of N389.90 billion in the nine months period– a growth of 47.9 percent, from the N263.70billion posted in the prior year.

The group’s operating profit increased to N27.26billion in the review nine months from N11.63billion in 9M’2015. Profit Before Taxation (PBT) decreased from N19.76billion in 9M’2015 to N10.29billion in 9M’ 2016; while profit for the period was down to N7.4billion from N19.003billion in the corresponding period of 2015.

The FMN group is primarily engaged in flour milling; production of pasta, noodles, edible oil and refined sugar; production of livestock feeds; farming and other agro-allied activities; distribution and sale of fertilizer; manufacturing and marketing of laminated, woven polypropylene sacks and flexible packaging materials; operation of terminal A and B at the Apapa Port; customs clearing and forwarding agents and shipping agents and logistics.      

According to research analysts at Dunn Loren Merrifield, though the top-line came slightly above our estimate, the strong growth indicates significant gains in market share and strong patronage of the company’s brand. The analysts considered Flour Mills Of Nigeria Plc results strongly positive, adding that they will be adjusting their valuation and forecasts to reflect the positives.

“We believe that the difficulty in sourcing foreign exchange buoyed the company’s sales as buyers look towards local product substitution. Based on the current growth rate, sales revenue for year end is expected to hit the N512billion mark,” the analysts said in their reaction to FMN results.

“In the same vein, gross profit expanded by 93.24 percent to N53.50 billion despite the 42.57 percent growth in production costs. However, the company’s Profit After Tax (PAT) declined by 47.98 percent to N10.30 billion. We however attribute the decline in earnings to the high base effect of the previous year when the company recorded gains of N23.73 billion from the disposal of investment in associate,” Dunn Loren Merrifield research analysts added.

With a market capitalization of N47.236billion and shares outstanding of 2,624,237,187 units, Flour Mills of Nigeria Plc is listed under food products subsector of the NSE consumer goods sector. The share price stood at N18 Tuesday – after attaining 52-week highs of N24.99 and 52-week low of N16.20kobo.

“While the sugar business is still ramping up, we believe that FMN’s backward integration strategy via investments in palm oil, rice and sorghum amongst others is starting to pay-off. Pending comments from management, we believe that unit volumes, particularly those in the foods division benefitted from consumers down-trading to cheaper domestic brands”, according to Tunde Abidoye-led team of research analysts at FBNQuest.

According to FBNQuest analysts: “ We believe that consumers (particularly the price sensitive ones) now see FMN’s cereals and snacks, such as the Daily Delight Instant Cereal, Golden Penny Margarine and Golden Penny vegetable, as ready alternatives to their more expensive rival brands.”

“Although the share of wheat flour is reducing in FMN’s overall product mix, the company still faces downside risks arising from an uptick in wheat prices and volatility of the naira exchange rate on the interbank market.

FMN’s 9M PBT tracks ahead of consensus FY 2017 (end-March) PBT forecast. As such, we expect a positive reaction from the market. Year to date (ytd), FMN shares have outperformed the index marginally (+0.1percent versus -3.1 percent ASI). We rate FMN shares Outperform. Our estimates are under review,” the research analysts at FBNQuest further stated.

Iheanyi Nwachukwu