Tuesday, July 04, 2017 12:45 PM / FBNQuest Research
Event: Flour Mills of Nigeria (FMN) reports Q4 2017 (end-Mar) results
Implications: Marked downward revisions to consensus 2018 PBT forecast likely, and a negative reaction from the market
Positives: Sales grew by 71%% y/y. PAT improved to N2.2bn vs. –N4.3bn in Q4 2016
Negatives: FMN reported a 153% y/y surge in interest expense to N10.3bn in Q4
Late yesterday, the NSE published Flour Mills of Nigeria’s (FMN) Q4 2017 (end-Mar) results which showed that PAT grew to N2.2bn from a post-tax loss of –N4.3bn in Q4 2016. Although Q4 sales grew by 71% y/y to N135bn, the firm reported a modest PBT of N179m.
The PBT was muted by a combination of factors including a 153% y/y spike in interest expense, a 17% y/y rise in opex and a -279bps y/y contraction in gross margin to 9.8%. The positive result in PAT was helped by a tax credit of N1.3bn and a positive result of N771m in other comprehensive income (OCI).
Sequentially, sales were flattish q/q. However, PBT declined by 88% q/q due to significant spikes in opex and interest expense. Regardless of the marked decline in PBT, PAT grew by 205% q/q, thanks to the tax rebate and the OCI gains.
Compared with our forecasts, sales were slightly ahead (+6%) while PBT and PAT were well ahead of the pre-tax and post-tax losses of -N2.6bn and –N2.2bn that we had in our model.
On a full year basis, sales grew by 53% y/y to N524bn. However, PBT and PAT declined by -9% y/y and -38% y/y to N10.5bn and N8.7bn respectively. Similar to the trends in the Q4 quarter, the y/y declines in PBT and PAT were driven marked increases in interest expense and opex respectively.
The company has proposed a dividend per share of N1.00 (flat y/y) which translates to a dividend yield of 3.7%. The proposed dividend is around 30% lower than our N1.43 forecast and 41% lower than consensus. The DPS translates to a dividend payout of around 30%.
In terms of the topline, the foods business which contributed around 80% to sales grew by around 51% y/y on a full year basis. However, the agro-allied business which accounts for around 15% of sales grew faster, by 72% y/y.
Pending comments from management, we believe that the topline growth benefited slightly more from price increases as opposed to volume growth.
We also believe that unit volumes, particularly those in the foods division benefitted from consumers down-trading to cheaper domestic brands.
Year to date, FMN shares have outperformed the market. The shares have gained 46% compared with 21.9% for the ASI. Given that its full year 2017 PBT came in behind consensus PBT forecast of N12.4bn, we expect to see some profit taking and downward revisions to consensus 2018 PBT forecasts.
In terms of outlook, Bloomberg consensus wheat forecasts indicate that prices are expected to rise marginally by around 4% through Q4 2017 (end-Dec). As such, the company still faces downside risks.
We rate FMN shares Outperform. Our estimates are under review.
Flour Mills of Nigeria Q4 2017 (end-Mar) results: actual vs. FBNQuest Research estimates (N millions)
Source: NSE; FBNQuest Estimates
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