Flour Mills of Nigeria Plc. H1'17/18 results - Earnings beats estimate, up 44.6% YoY

Flour Mills of Nigeria Plc. H1'17/18 results - Earnings beats estimate, up 44.6% YoY
(Source: CardinalStone Research, Date: 31-Oct-2017)

CardinalStone Research: Flour Mills of Nigeria Plc. H1'17/18 results - Earnings beats estimate, up 44.6% YoY

31 October 2017

Good afternoon,

Flour Mills of Nigeria (FLOURMILL) H1'17/18 results - Turnover rose by 16.9% YoY to N298.4 billion, within our estimate of N294.5 billion (+1.4% deviation). After tax earnings rose by 44.6% YoY to N9.4 billion, ahead of our estimate of N8.2 billion (+14.7% deviation).

Other highlights:

Â· FLOURMILL reported a 9.8% YoY increase in Q2'17/18 revenue to N149.5 billion, driven by higher prices and volume growth. All segments reported positive growth, notably the Food segment as it grew by 10.4% YoY, contributing 78.5% to aggregate revenue. Sequentially, the company reported modest growth of 0.3% QoQ.

Â· While Q2 gross margin contracted by 331bps to 12.2%, operating margin increased substantially by 358bps to 9.6% due to the low base of Q3'16 where high foreign exchange losses limited operating profit growth. On a quarterly basis, gross margin increased by 65bps QoQ while operating margin eased by 50bps due to high operating expenses.

Â· Q2'17/18 net finance cost was relatively higher as it grew by 34.1% YoY, owing to a 31.1% YoY increase in interest expense on its loans and borrowings. The company's gross debt currently stands at N147.2 billion as at H1'17/18 (FY'16/17: N192.6 billion; Q1'17/18: N141.2 billion). On a quarterly basis however, finance cost declined by 17.8% YoY to N7.3 billion.

Â· Despite the high finance cost, Q2'17/18 after-tax earnings came in strong as it grew by 134.8% YoY due to the low base of the corresponding period of the prior year. Sequentially, earnings rose by 6.4% QoQ.

N'billion	H1'17/18	H1'16/17	YoY	CSP Est.	% Variance
Revenue	298.4	255.3	16.9%	294.5	1.4%
Cost of Goods Sold	(262.9)	(218.9)	20.1%	(259.3)	1.4%
Gross profit	35.5	36.4	-2.5%	35.1	1.1%
SGA Expenses	(11.1)	(9.1)	21.6%	(12.1)	-8.3%
Other Income	5.1	(8.1)	-162.8%	4.3	17.6%
Financial Charges	(16.0)	(10.4)	53.8%	(14.8)	7.8%
PBT	13.5	8.8	53.1%	12.5	8.1%
Taxation	(4.1)	(2.3)	76.7%	(4.3)	-4.3%
PAT	9.4	6.5	44.6%	8.2	14.7%
	H1'17/18	H1'16/17
Gross profit margin	11.9%	14.3%
Operating Profit margin	9.9%	7.5%
PAT margin	3.1%	2.5%

Kindly see below Flourmill quarterly breakdown;

N'billion	Q2'17/18	Q2'16/17	YoY	Q1'17/18	QoQ
Revenue	149.5	136.1	9.8%	149.0	0.3%
Cost of Goods Sold	(131.2)	(115.0)	14.1%	(131.7)	-0.4%
Gross profit	18.3	21.1	-13.6%	17.2	6.0%
SGA Expenses	(5.8)	(5.2)	12.5%	(5.3)	9.4%
Other Income	1.9	-7.8	-124.8%	3.2	-39.0%
Financial Charges	(7.1)	(5.3)	34.1%	(8.9)	-20.1%
PBT	7.3	2.9	148.8%	6.2	17.6%
Taxation	(2.5)	(0.9)	181.6%	(1.7)	47.9%
PAT	4.8	2.1	134.8%	4.5	6.4%
	Q2'17/18	Q2'16/17		Q1'17/18
Gross profit margin	12.2%	15.5%		11.6%
Operating Profit margin	9.6%	6.0%		10.1%
PAT margin	3.2%	1.5%		3.0%

Kindly click here for a copy of Flour Mills of Nigeria H1'17/18 results

Based on our last review, the counter has a target price of N38.12 (BUY)

Regards,

Feyisike Ilemore

Analyst, Consumer Goods

CardinalStone Partners Ltd

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