Flour Mills of Nigeria – FX challenges shrink margins, Earnings growth undeterred

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Flour Mills Revenue has shown quite impressive growth in the first quarter (+15% y/y, ₦169.3 billion). We believe that the company is starting to reap the benefit of strategically positioning itself in the value segment of the food market to cater to price-sensitive consumers.

Furthermore, with the land borders closed, the company has grown its market share across its other segments (specifically its sugar and agro-allied businesses). We expect these tailwinds to remain, resulting in a 19% y/y revenue growth in Q2 and a 17% y/y growth in H1’21.

Flour Mills of Nigeria - FX challenges shrink margins, Earnings growth undeterred

 

We forecast a 2ppts drop in margins (gross or operating?) to 15% for the quarter, an aftermath of the devaluation of the naira and the increased difficulties in importing raw materials.

Given Flour Mills expected stable debt balance in this quarter, we expect interest expense in Q2 to remain stable and PBT to print at ₦4.7 billion.

Adjusting for tax, we expect PAT to grow 4.1x y/y to ₦8.4 billion.

Flour Mills of Nigeria - FX challenges shrink margins, Earnings growth undeterred Brandspurng
Source: Company Fillings, Vetiva Research

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