Monday, November 09, 2020 / 11:38 AM / by FBNQuest Research / Header Image Credit: Marketforces Africa
increase to average EPS forecast
of Nigeria's (FMN) sales surged 47% y/y to an all-time high of N201bn in Q2
2021 (end-Sep). In terms of profitability, the company is on track to deliver
its best fiscal-year performance. Topline for the quarter was driven by high
double-digit volume growth across all the businesses.
product launches, a stronger sales push within the retail segment, enhanced
route to market and a favourable price-volume mix were cited by management as
chief performance drivers. PBT for the group, up 2.6x y/y to N8.2bn, was fueled
by significant growth in earnings from the Agro Allied (37x y/y) and Sugar (2x
y/y) businesses. Beyond earnings, FMN's balance sheet improved on the back of a
boost to its cash balance. Net debt-to-equity ratio halved y/y to 0.34x,
largely driven by a 67% y/y increase in operating cash flow.
these results, our forecasts have improved considerably. That said, we remain
cautious about the following: i) FMN's flour (c.40% of sales) and sugar (c.16%
of sales) segments are heavily import dependent. A limited price pass-through
ability (given subdued purchasing power and FMN being a price taker in the
sugar market) therefore leaves the firm most exposed to fx pressure; and ii)
although management's recent comments did not emphasise this, robust earnings
are expected to be supported by stronger demand induced by the border closure,
which may be lifted in forecast years.
we have raised our 2021-23E EPS forecasts by an average of 33%. We also
anticipate a more robust dividend policy given the stronger cash position. As
such, we model a 26% increase in our 2021E dividend forecast to N4.4. Given the
EPS changes combined with a rollover of our forecasts to 2022E, our new price
target of N49.2 is higher by 46%.
FMN shares have gained 38%, outperforming the broad market index by 23%. The
shares are currently trading on a 2021E P/E of 5.6x for an average EPS growth
of 21% in 2021-23E. Our new price target implies a potential upside of 81% from
current levels. We retain our Outperform rating on the stock.
PBT mainly driven by sales growth
and net interest expense increased by 27% y/y and 21% y/y respectively, while
other operating loss increased by 19x. That said, these were not strong enough
to fully offset the surge in sales. Sequentially, sales were up 30% q/q whereas
gross margin contracted by -419bps q/q. Opex also increased by 52% q/q.
PBT increased by 26% q/q, underpinned by the q/q sales growth. PBT beat our
forecast by 69%, thanks to positive surprises of 39% and -12% from sales and
net interest expense respectively.
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Closes Today December 12th, 2019
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