Honeywell Flour Mills Plc Rolls up Profit Numbers in Q3 2020 Despite COVID-19 Concerns

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Thursday, January 04, 2021, / 8:30 PM / by Adesola Borokinni, Proshare Research / Header Image Credit: Business Post Nigeria


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Despite COVID-19 fears that stoked investment concerns in Q2 and Q3 2020, Honeywell Flour Mills Plc bucked analyst's expectations with its financial fortunes improving as revenues rose by +41.0% year-on-year (Y-o-Y) despite a general economic meltdown. Unlike other companies that were adversely affected by the coronavirus pandemic, Honeywell Flour Mills Plc a member of the consumer goods sector recorded a significant improvement in its financial position as its profit before tax (PBT) bounced from a loss in Q3 2019 to a profit of N476m in Q3 2020. The PBT rise represented a +154.2% uptick in earnings as gross revenue rose by +41.0% to N82.13bn.


Highlights

  • Revenue rose by +41.0% to N82.13bn in Q3 2020 from N58.23bn Q3 2019.
  • PBT increased by +154.2% to N476m in Q3 2020 from a loss of N878m in Q3 2019.
  • Equity increased by +2.78% to N57.29bn in Q3 2020 from N56bn in Q3 2019.
  • Selling and administration expenses rose by +2.11% to N7.11bn in Q3 2020 from N6.96bn in Q3 2019.


Profit-From Red to Green

Honeywell Flour Mills Plc recorded a turnaround in its financial position in Q3 2020. Its profit before tax rose by +154.2% in Q3 2020. PBT increased to N476m in Q3 2020 from a loss position of N878m in Q3 2019 (see Chart 1 below).


Chart 1: Honeywell Flour Mills Plc PBT (N'm)

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Source: Honeywell Flour Mills Plc Financial Statement, Proshare Research

 

Revenue- Climbing an Escalator

The company saw an improvement in its product sales in the third quarter, despite the effect of inflation and the coronavirus pandemic weighing down on consumer's purses. Its revenue rose by +41.04% in Q3 2020. Its revenue increased from N58.23bn in Q3 2019 from N82.13bn in Q3 2020 (see Chart 2 below).


Chart 2: Honeywell Flour Mills Plc Revenue (N'bn)

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Source: Honeywell Flour Mills Plc Financial Statement, Proshare Research


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The Cost Surge

As revenue skipped up the miller saw a rise in its sales, general and administrative expenses marginally as the company's management put a lid on logistics and other costs tied to sales. Its selling and administration expenses rose by +2.11% while profit climbed by +154.2%.


Selling and Administration Expenses

The miller's sales and administration expenses rose slightly from N6.96bn in Q3 2019 to N7.11bn in Q3 2020 (see Chart 3 below).

 

Chart 3: Honeywell Flour Mills Plc Selling and Administrative Expenses (N'bn)

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Source: Honeywell Flour Mills Plc Financial Statement, Proshare Research


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Baking Sweet Returns

Equities

Honeywell Flour Mills Plc kept investors happy in the third quarter as it sustained an upward-looking equity trajectory. Its equity value rose by +2.78% in Q3 2020 to N57.29bn, the highest posted in the past five years. Total equity rose from N56bn in Q3 2019 to N57.29bn in Q3 2020 (see Chart 4 below).


Chart 4: Honeywell Flour Mills Plc Equities (N'bn)

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Source: Honeywell Flour Mills Plc Financial Statement, Proshare Research


Eyeballing Activity Ratios; Pin-Rolling Liquidity


Current Ratios

The pastrymaker's current ratio declined to o.71 in Q3 2020 from 0.97 in Q3 2019. This suggests that the miller had current assets of N0.71 for every N1.00 of current liabilities, this reflected relatively tight liquidity and lean working capital in the quarter. It may also be indicative of a need to increase short-term borrowings perhaps at lower lending costs (see Chart 5 below).


Chart 5: Honeywell Flour Mills Plc Current Ratios

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Source: Honeywell Flour Mills Plc Financial Statement, Proshare Research


Acid-test Ratio


The company's acid-test ratio (a stronger measure of liquidity) rose notably in Q3 2020. The milling giant's acid-test ratio rose from 0.23 in Q3 2019 to 0.36 in Q3 2020, most of the upward liquidity pressure reflects a spike in cash which rose by +171.61% as against the growth in inventories of +40.61%. The rise in cash and the upward movement in inventory may reflect the fact that the company may have benefitted from large spendings related to the palliative measures taken by the various governments and private sector organisations to temper the adverse consequences of the COVID-19 pandemic on citizens, particularly their access to food. Food items such as pasta and rice were food staples that were used to support COVID-19 interventions and could, in some measure, explain Honeywell's smaller rise in Q3 inventories relative to its rise in cash balances. The companies overall current assets rose by +68.88% as against the +32.31% rise in current liabilities  (see Chart 6 below).


Chart 6: Honeywell Flourmills Acid-test Ratio

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Source: Honeywell Flour Mills Plc Financial Statement, Proshare Research


Navigating through the A Tough Year

Despite the downing effects of the coronavirus pandemic on the Nigerian economy and the slump in the businesses of corporations in 2020, Honeywell Flour Mills Plc was able to keep its head above the tides as it kept profit and revenue up in the third quarter of the year. While the company's year-end 2020 outlook has been difficult to forecast, analysts believe that until vaccine distribution is swiftly implemented across the country the company's revenue and profit spike may be unsustainable. Much depends on how fast and well the medical authorities can vaccinate a large number of the population.


A recent study by the Economist magazine of London's economic intelligence unit (eiu), suggests that Nigeria may have to wait till either late 2022 or early 2023 before the country is adequately vaccinated against the COVID-19 virus.


Visit Honeywell Flour Mills Plc IR Page in Proshare MARKETS

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