EUR 53.02 For Business Accounts Only

FLOUR MILLS OF NIGERIA PLC - Earnings outperform estimates

• Following two consecutive quarters of slow topline growth, FLOURMILL began its FY’17 financial year on a strong note with Q1’17 results showing a 45% y/y and 51% q/q increase in revenue to N119 billion (23% above Vetiva’s estimate). According to management, the jump in revenue was driven by both volume growth (particularly in the Food segment) and price increases (ranging from 10% to 25% depending on the product category). Whilst all the business segments of the miller grew at double digit rates (save for the Packaging segment, down 6% y/y), a 43% y/y leap in the heavyweight Food business largely supported this performance.
• EBIT margin improved 489bps y/y to 9% (Vetiva: 5%, Q4’16: 4%) following a modest 6% y/y incline in administrative and distribution costs (Avg. 2016 inflation: 13%). According to management, this improvement in efficiency was as a result of benefits from a merger of 5 of its subsidiaries in FY’16. Following a marginal 3% reduction in total debt, net interest expense declined 14% y/y. Given the marked improvement recorded across most line items, FLOURMILL posted profit after tax of N4.4 billion in the quarter under review (Q1’16: N972 million, Vetiva: N726 million LAT, Q4'16: N6.2 billion LAT).

• Whilst we note the impressive growth recorded in Q1’17, we do not expect growth in the next quarter to be as strong given that the July – Sept period usually sees slower growth for most consumer companies. Also we have adjusted our operating expenses assumption as we expect the synergy to help contain costs going forward. That said, we have revised our FY’17 revenue and EPS estimates to N410 billion (Previous: N372 billion) and N3.03 (Previous: N1.15 loss) respectively. Consequently, our 12 month target price (TP) is raised to N31.42 (Prev: N23.41).