FLOUR MILLS OF NIGERIA - Abnormally weak Q4 slows strong FY earnings

FLOUR MILLS OF NIGERIA PLC
Abnormally weak Q4 slows strong FY earnings
FLOURMILL released its FY’16/17 financial results with revenue coming in 53% higher y/y and 2% above Vetiva estimate at ₦524 billion - finishing the year with yet another revenue outperformance in its final quarter. Earnings were further supported by improvement in costs which saw operating profit rise from ₦9 billion to ₦41 billion. Despite reporting impressive y/y growth in operating profit, PAT was down 39 y/y to ₦8.8 billion (prior year: ₦14.4 billion). It is important to note that the y/y decline in PAT is not a fair comparison given that bottom line in the prior year was bloated by a ₦23 billion exceptional item (UNICEM sale proceeds). Save for the exceptional item, we highlight that prior year’s bottom line would have come in at a ₦12.2 billion loss before tax. Nonetheless, the Board of Directors proposed a ₦1.00/share dividend (FY’15/16: ₦1.00/share) – representing a current dividend yield of 4%.

Whilst the y/y performance for FLOURMILL remains impressive, the Q4 numbers look quite disturbing and we are wary as to how well the company will leverage the improvement in the operating environment amidst prevalent internal risks which could quickly derail earnings prospects. Further supported by an improving macroeconomic environment, we remain optimistic about revenue growth, particularly in the Food and Agro-Allied segments, and forecast a 9% rise in topline in FY’17/18. We however revise our EPS for the period lower given our more cautious stance on cost efficiency and an upward revision to interest expense estimate. Our FY’17/18 EPS is revised to ₦4.16 (Previous: ₦5.40) and 12-month Target Price is cut to ₦31.71 (Previous: ₦34.63).