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FLOUR MILLS OF NIGERIA PLC H1'17/18 Earnings - Pleasing H1 performance, outlook remains upbeat

Pleasing H1 performance, outlook remains upbeat                                                 

FLOURMILL sustained the positive top line growth momentum in its H1’17/18 result, reporting a 17% y/y rise in revenue to ₦298 billion – in line with Vetiva estimates. The top line growth was driven by a recovery in volumes in the Food segment (up 18%) and improved performance of the Packaging segment (up 78%) – both contributing 78% and 3% respectively to revenue. We highlight that despite a price cut implemented within the quarter (according to management), revenue came in flat q/q – supported by the strong volume growth. Gross margin came in marginally higher than we had estimated at 12.2% (Vetiva: 12.1%, Q1: 11.6%). However, on a y/y basis, H1’17/18 gross margin was down 237bps to 11.9%, largely depressed by higher input costs from the Agro-Allied segment as earlier highlighted.                                                

We raise our FY’17/18 revenue estimate 3% higher to ₦600 billion, reflecting the overall improvement in the demand landscape, particularly for the Food business, and an anticipated improvement in the Agro-Allied segment as the Company reviews its route-to-market for the segment. Following a 20% upward revision of our net operating gains estimate and a lower net interest expense estimate (from ₦33 billion to ₦30 billion for FY’17/18), we revise our FY’17 PAT estimate to ₦18 billion (Previous: ₦13 billion, FY’16/17: ₦9 billion) and 12-Month Target Price to ₦40.82.