CardinalStone Research: Flour Mills of Nigeria Plc. FY'16/17 results - Earnings decline on high base of prior year

                                                                                                                                                                                                                                                                                                                                                                                                04 July 2017

Good morning,

Flour Mills of Nigeria Plc. (FLOURMILL) FY'16/17 results just out - Turnover rose markedly by 53.1% YoY to N524.5 billion, in line with our estimate of N525.1 billion (-0.1% deviation). However, after tax earnings decreased by 38.7% YoY to N8.8 billion, within our estimate of N8.7 billion and consensus estimate of N8.5 billion.

Other highlights:

·         FLOURMILL's remarkable turnover growth (+53.1% YoY) was bolstered by strong price hikes implemented during the fiscal year. A breakdown of revenue also revealed commendable growth across major segments - Food (+50.8% YoY), Agro Allied (+72.3% YoY) and Packaging (+71.0% YoY).  

·         Gross margin expanded by 170bps to 12.7% supported by product price increases implemented to protect margin and support earnings.

·         Another positive to earnings was a moderation in net operating losses to N1.5 billion from N11.7 billion in 9M'16/17  largely due to a N7.5 billion decline in exchange losses.

·         However, interest expense rose by 36.9% YoY to N29.0 billion given the Company's huge debt profile (N192.6 billion debt outstanding ex-overdrafts as at FY'16/17) and elevated cost of debt.

·         Given the aforementioned, FLOURMILL reported a 38.7% YoY decrease in after-tax earnings to N8.8 billion, supported by a lower effective tax of 15.6% (FY'15/16: 25.5%).

·         We however highlight that the prior year was a high base where FLOURMILL reported N23.7 billion from the sale of its stake in UNICEM. Excluding the gain, the company would have reported a loss after tax of N9.3 billion in FY'15/16. Therefore, current earnings performance of N8.8 billion is an improvement over FY'15/16.

Flourmill declared a final dividend of N1.00 per share which implies a dividend yield of 3.7% based on yesterday's close price.

*Net operating gains and losses includes gain on disposal of investment in associate

Kindly click here for a copy of Flour Mills of Nigeria Plc. FY'16/17 results.

Our target price on FLOURMILL is under review.