EUR 56.22 For Business Accounts Only

FLOUR MILLS OF NIGERIA PLC - FX losses debase strong topline growth

• Buoyed by the strongest quarterly revenue performance on record, FLOURMILL reported a 44% y/y topline growth in its H1’17 period ended 30 September 2016. Amidst a challenging operating landscape, the company’s outperformance can be tied to gradual increases in selling prices (ranging between 10% and 25% as at Q1) as well as strong volume growth. We believe additional product offerings (such as edible oils and cereal snacks) effected in FY’16 and a ramp up in sugar production have played a major role in this volume performance. Despite the gross margin improvement, EBIT margin declined to 6% in Q2’17 compared to 9% in Q1’17 following a ₦9.3 billion FX loss recorded in its “other operating expense” line.
• On the back of this result, we have revised our FY’17 revenue to ₦494 billion (Prev: ₦410 billion), representing a 44% y/y turnover growth. However, our EPS estimate is cut slightly to ₦3.88 (Previous: ₦3.96) as we expect currency weakness will continue to pressure bottom line. Nonetheless, following extensive capacity expansion in the past years, we are more optimistic about FLOURMILL’s earnings trajectory amidst better volume performance in its sugar (commenced production at Sunti Golden Sugar Estate in Q1) and agro-allied businesses. Thus, we have revised our revenue and earnings growth estimates for the coming years upwards. Our 12 month target price (TP) is raised to ₦35.86 (Prev: ₦32.58, BUY).
• Flour Mills of Nigeria Plc is primarily engaged in flour milling, production of pasta, noodles, edible oil and livestock feeds, farming and other agro-allied activities, distribution and sales of fertilizer, manufacturing and marketing of laminated woven polypropylene sacks and flexible packaging materials, cement manufacturing, operating terminals A and B at the Apapa Port, customs clearing, forwarding agents, shipping agents and logistics and management of third party mills. The Group derives 90% of its sales from its food and agro-allied businesses.