FREE

FLOUR MILLS OF NIGERIA PLC 9M'21 - Earnings Trajectory, best in decade

Continued expansion across segments accelerates PAT growth Sustaining the impressive growth momentum from the H1’21 period, Flourmills reported a 31% y/y growth in topline to ₦555.3 billion and a 91% y/y growth in PAT to ₦15.6 billion in 9M’21. The expansion in bottom line came down to impressive volumes, improved margins from cost efficiencies and increased investment income. The company reported a 6% y/y increase in volume, driven by its emphasized focus on B2C marketing and investment in key distribution strategies. Thus, although cost of sales increased 29% y/y – mostly from input sourcing challenges and other inflationary pressures, as well as a 6% y/y surge in Opex, the company’s operating margin grew 1ppt to 6%. Furthermore, boosted by higher cash and debt balances, Finance income and Finance costs surged nearly 400% and 14% y/y respectively, with Net Finance costs dipping 6% y/y to ₦12.4 billion. Overall, Flourmills’ PBT and PBT margin came in at ₦23.6 billion and 4% respectively (9M’20: ₦12.3 billion and 3% respectively), with EPS growing ₦1.81 to ₦3.80.

Expect a strong close to the year. To end the financial year, we are still bullish on the company’s volumes, despite the possible headwinds that the AfCFTA poses, given its solid investments in new products and distribution as well as its placement in the value segment. However, we remain cautious on growth expectations for the agro-allied segment. That said, we expect the company to report full year Revenue of ₦749.5 billion, which would represent a 31% y/y growth. This places the expected Q4’21 Revenue at ₦194.2 billion (+29% y/y). In terms of margins, expecting largely stable conditions (at least in line with the current run rate), we forecast gross margin at 13% y/y under the expectation that the company’s export effort would continue to mitigate FX sourcing costs. Flourmills has been able to set up three Regional Distribution Centres in the North, with expansion plans to include four more centres possibly in this quarter, we project a 6% y/y increase in Opex for FY’21.