Flour Mills of Nigeria Plc FY'21 Earnings - Strong product portfolio will drive growth
| Strong product portfolio will drive growth. | |||||
| Flour Mills of Nigeria has released its audited FY’21 earnings report, showing revenue growth (+34% y/y) that outpaced our 30% y/y projection. Despite FX challenges and cost volatilities, the company managed to preserve and enhance the positive revenue performance in its PAT performance (+124% y/y to ₦24.5 billion). The company has also proposed a dividend of ₦1.65, an 18% upside from the ₦1.40 declared in the FY’20 period, and a 5.7% dividend yield relative to its current trading price. | |||||
| Growth not slowed despite border re-opening Despite the reopening of the land borders on the first day of the year, Flourmills’ food volumes, specifically its pasta (+23%) and ball foods (+26%) segments, has maintained its sizable growth trajectory, posting food revenue of ₦478.3 billion (+34% y/y) for the full year. Whilst we believe that the defensive nature of the food sector has helped volumes remain stable, we also believe that the company’s strategy to include new value products in its food portfolio was a big driver of growth. Additionally, we had spoken on the company’s focus shift to B2C marketing, which we believe also improved volumes considerably. Contrary to our expectation, expansion in the company’s agro-allied segment has not slowed, with the 32% y/y growth in this segment to ₦139.4 billion, driven by a 29% volume expansion in fertilizer and a 14% growth in edible oils. On the other hand, Flourmills’ sugar business has reported slower growth. Combining the subsector performances, Flourmills’ FY’21 Revenue came in at ₦771.6 billion, ahead of our expectation of ₦749.5 billion. Given that the border reopening seems to be of minimal threat to the company’s operations, we cautiously reverse our earlier expectation of reduced sales volumes on this basis, as we await the company’s Q1’22 earnings to confirm our position. Furthermore, the company has continued to introduce new products into the market (most recently the Amaizing Day cereal), largely targeted at the value segment. More so, its B2C marketing strategy should yield further volume growth in the year. All in, we estimate an FY’22 revenue figure of ₦862.6 billion (+12% y/y). Cost of sales accelerated 31% y/y in the year (FY’20:7%), driven by inflated cost of raw materials from supply chain disruptions and the effect of currency depreciations in the year. With this, gross margin only improved 1ppt to 14% from the 9M’21 performance (9M’21:13%, FY’20:11%), despite the impressive revenue performance. |
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