Flour Mills of Nigeria Q4 2020 and Q1 2021 Results Review: Upgrading to Outperform

Proshare

Monday, August 24, 2020 / 12:45 PM /by  FBNQuest Research / Header Image Credit: Nairametrics

 

Proshare Nigeria Pvt. Ltd.


2021-23E average EPS and PT up 83% and 23% respectively

Flour Mills Nigeria's (FMN) Q4 2020 (end-Mar) and Q1 2021 (end-Jun) results imply that the earnings boost received from last year's border closure was more significant than we had anticipated. PBT beat our Q4 and Q1 forecasts by 3.3x and  88% respectively. The results also suggest that FMN fared better than peers amid the pandemic environment, as Q1 gross margin expanded by 430bps y/y to 16.5%, its highest since Q4 2015. The expansion compares with contractions of -562bps y/y and -342bps y/y from Dangote Sugar Refinery and UAC of Nigeria respectively.

 

Based on management comments during the Q1 call, sales - up 15% y/y - were mostly demand driven as price increases were marginal despite strong fx headwinds. Specifically, the pasta, sugar, and edible oil businesses delivered double-digit volume growth, fueled by the border closure. Given recent results, our earnings outlook for FMN has improved considerably. Our 2021-23E EPS forecasts have been raised significantly by an average of 83%. We however recognize the following points as key risks to our outlook: i) FMN's flour (c.44% of sales) and sugar (c.17% 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 depreciatory pressure; and ii) robust earnings are expected to be largely supported by stronger demand induced by the border closure, which may not be perpetual. Given that we modelled higher fx rates for capex and key components of working capital, the impact of the earnings forecast changes were limited.

 

Consequently, our new price target of N33.6 is higher by 23% - a fraction of the average EPS increase. Year-to-date, FMN shares have shed -6%, on par with the broad market index. The shares are currently trading on a 2021 P/E of 4.8x for an average EPS growth of 21% in 2021-23E. Our new price target implies a potential upside of 82% from current levels. Despite the risks highlighted above, we view the upside and earnings potential to be compelling. We therefore upgrade our rating on the stock to Outperform.

 

Strong PBT driven by sales growth

FMN grew Q1 sales by 15% y/y. Opex and interest expense increased 3% and 7% respectively but these negatives were more than offset by the sales growth. As such, PBT grew 17% to N6.5bn. Sequentially, PBT grew 24% q/q,  largely driven by a gross margin expansion of 458bps q/q and -23% and -29% q/q declines in opex and interest expense respectively. PBT beat our forecast by 88%, thanks to positive surprises of 16% and -9% from sales and opex respectively.

 

Proshare Nigeria Pvt. Ltd.

 

Related News - Flour Mills Of Nigeria Plc

1.     Flour Mills of Nigeria Plc Lists Bonds on NSE

2.      Flour Mills of Nigeria Q3 2020 Results Review: Neutral Rating Maintained Despite Strong Results

3.      Invest in Flour Mills Tranche A and Tranche B Bonds Issuance Programme

4.      Flour Mills of Nigeria Series 12 Commercial Paper Is Now Open

5.      Flour Mills of Nigeria Series 11 Commercial Paper Closes Today December 12th, 2019

6.      FLOURMILL Declares N8.16bn PAT in Q3 2019 Result, (SP:N22.35k)

7.      FLOURMILL Issues Up To N20bn In 3-Yr and 5-Yr Series 3 Bonds

8.     FLOURMILL Declares N4.24 billion PAT in Q1 2020 Results,(SP:N14.85k)

9.      FLOURMILL Declares N4.00bn PAT in 2019 Audited Result,(SP:N16.20k)

10.  FLOURMILL Notifies of Late Filing of the Company's 2019 AFS

11.   FLOURMILL Notifies of a Court Ordered Meeting of the Share Holders of the Company

12.  FLOURMILL Declares N7.89 bn PAT in Q3'19 Results,(SP:N19.00k)

13.  Flour Mills of Nigeria Plc Q1 2019 Conference Call and Earnings ...

14.  FLOURMILL to Hold Its 58th AGM on Thursday, 3oth August 2018

15.  FLOURMILL Announces to Pay Final Dividend for the Year Ended 31st March 2018

16.  Conference Call Memo on Flour Mills of Nigeria Plc FY 2018 Results

17.   FLOURMILL to Hold Its AGM on Thursday, 30th of August, 2018

18.  Flour Mills of Nigeria Q4 2018 Results - Sales Down by -14% YoY to N115.16bn

19.  FLOURMILL Declares N13.62bn PAT in 2018 Audited Result,(SP:N32.00k)

20. Flour Mills of Nigeria Plc Rights Issue Closes on 21 February 2018

21.  Flour Mills of Nigeria Plc Proposed 1.48bn Rights Issue


Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP