Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 NSE: FLOURMILL l Bloomberg: FLOURMIL NL Usual Double Digits Trajectory Eludes Flour Mills of Nigeria reversed the previous quarter s marginal decline in top-line (- 1.45%) posting a year-on-year (YoY) turnover growth of 1.70% for Q3:2015 (NGN244.28bn vs. 240.19bn in Q3:2015), being an addition of NGN78.74bn to the previous quarter. Cost to sales ratio rose to 90.87% from 89.86% in 2014Q3 even as OPEX inched up by 4.34% (NGN12.825 vs. NGN12.291 in 2014Q3). Finance cost also took a leap of 45.03% (NGN15.340bn vs. NGN10.574bn in 2014 Q3) depressing bottom-line further, as Profit before tax (PBT) and Profit after tax (PAT) dipped by 55.73% and 44.63% respectively. Based on the current realities, we revised our full year revenue expectation for the company downward on the back of its 9months performance and the impact of heightened security and economic concerns in Nigeria on their full year. We have also reviewed our FY 2015 target price downward to NGN55.25 from the previous NGN60.31. We however maintain our BUY stance. Uninspiring Revenue growth: FLOURMILL continues to be eluded by its usual double digits growth, although it survived a marginal turnover growth of 1.70% (NGN244.28bn vs NGN240.189bn) year on year (YoY) and 47.56% (NGN244.28bn vs NGN165.54bn) expansion over the previous quarter. Although the company has not fared well in this quarter, we expect the new product lines such as the recently launched Kool2Go instant powdered milk and Golden penny multipurpose flour to boost the top-line. We also expect the Commissioning of facilities (Thai Farms in Ogun), On-going Sugar project and mill projected to produce 100,000 metric tons of sugar annually as well as 10MW of electricity in line with the National sugar Master Plan should suggest stronger performance in the future. Cost Margin continues to dampen revenue growth aided by finance charge: Cost of sales rose by 2.85% YoY, despite moderating prices of commodities in the global market. FLOURMILL s cost to sales ratio inched higher to 90.87% YoY (vs 89.86% in 2014Q3). Similarly, OPEX rose 4.34% and finance cost jumped by 45.06% YoY (NGN15.34bn vs. NGN10.574bn). According to management, increase in financial expenses reflects higher level of debts for some key investments in wheat flour pasta and capacity expansion in Apapa, Ikamo and Agbara. Incremental interest expenses relating to sugar refinery commissioned over a year ago in Apapa also accounted to finance charges pressures. Whilst we acknowledge the reaction that follows the company s divestment from UNICEM, the company maintained that the fund will be used to repay its debt. A combination of the above dragged the company s PAT performance to NGN3.295bn (vs.2014q3: NGN5.932bn), a significant decline of 44.46% compared to corresponding period. Our valuation methodologies still suggest a BUY: Using a blend of absolute and relative valuation methods, we still opine that FLOURMILL at its current market price of NGN34.20 is still undervalued now by 70.05%. We revised our valuation assumption with respect to recent numbers, to arrive at a target price of NGN55.25 a downward review from the previous NGN60.31. We however maintain our BUY rating. Target Price: Rating: FEBRUARY 2015 Relative Metrics Current price (NGN) 32.49 P/E ttm 13.22x P/B 0.95x Forward P/E 20.09x 52-Wk av. Vol (mn) 0.874 Fundamental Metrics Trailing EPS 2.46 BVPS 34.30 Net Margin 1.35% ROAE 4.03% ROAA 1.06% Asset Turnover 1.33X Debt/Equity Ratio 2.06X Leverage 4.06X Mkt. Cap (N bn) 86.573 Key Price Metrics Today Return -5.00% WtD Return -5.00% MtD Return -12.31% QtD Return -17.12% YtD Return -17.12% 52-Week Return -58.92% 52-Week Hi 79.09 52-Week Lo 32.49 Year Hi 39.80 Year Lo 32.49 Beta 0.793 14D-RSI 49.45 1.10 1.00 0.90 0.80 0.70 0.60 0.50 NSEASI Analyst: Mosope Oluwapelumi mosopeoluwapelumi@meristemng.com 1 P a g e NGN55.25 BUY FLOURMILL
Financial Highlights (NGN billion) FLOUR MILLS PLC Q3:2015 AUDITED RESULT Profit & Loss Account Q3:2015 Q3:2014 y/y Growth 2015f Revenue 244.28 240.189 1.70% 340.612 Cost of Sales 221.968 215.826 2.85% 292.927 Gross Profit 22.312 24.363-8.42% 47.685 OPEX 12.825 12.291 4.34% 29.587 Finance Expense 15.34 10.574 45.06% 19.559 PBT 3.697 8.35-55.73% 18.563 PAT 3.295 5.932-44.46% 7.21 Balance Sheet Property, Plant & Equipment 196.031 169.288 15.80% 140.619 Inventories 61.167 63.684-3.95% 71.872 Trade and other receivables 21.233 17.272 22.94% 15.999 Long term loans receivable 12.576 11.458 9.76% 21.853 Investment in associates 0 7.79-100.00% Cash and bank balances 12.474 16.825-25.86% 29.592 Other Assets 21.67 10.933 98.20% 34.296 Total Assets 325.151 297.249 9.39% 312.488 Shareholders' fund 80.08 83.559-4.16% 87.165 Trade Payables and other Payables 30.175 38.116-20.83% Borrowings - Long term 76.051 43.614 144.60% 45.513 Short Term Loans 67.738 27.693 14.69% 15.456 Total Liabilities 245.071 213.69 14.69% 225.323 Per share data FLOURMILL Current Price 34.20 Trailing EPS 2.46 BVPS 34.3 Price multiples/ratios Shares Outstanding 2.33 P/E 13.22x 20.09x P/BV 0.95x 1.66x RoAE 4.03% 8.45% RoAA 1.06% 2.37% Financial Leverage 4.06 3.56 1.39 Cost-to-Sales 90.87% 89.86% 86.00% Gross Profit Margin 9.13% 10.14% 14.00% OPEX Ratio 5.25% 5.12% 8.69% Net margin 1.35% 2.47% 2.12% 2 P a g e
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Movements in Price Target Company Name: Flour Mills of Nigeria Plc Date Price (N) Previous Target Price(N) New Target Price (N) Previous Recommendation 09/02/2015 32.49 60.31 55.25 BUY BUY New Recommendation Company disclosures Meristem or the analyst(s) responsible for the coverage may have financial or beneficial interest in securities or related investments discussed in this report, which could, unintentionally, affect the objectivity of this report. Material interests, which Meristem or the analyst(s) have with companies or in securities discussed in this report, are disclosed below: Company Flour Mills of Nigeria Plc Disclosure a. The analyst(s) hold(s) personal positions (directly or indirectly) in a class of the common equity securities of the company. b. The analyst responsible for this report, as indicated on the front page, is a board member, officer or director of the company c. Meristem beneficially owns 1% or more of the equity securities of the company d. Meristem has been the lead manager or co-lead manager of any publicly disclosed offer of securities of the company over the past 12 months. e. Meristem beneficially holds a major interest in the debt of the company f. Meristem has received compensation for investment banking activities from the company within the last 12 months g. Meristem intends to seek, or anticipates receipt of compensation for investment banking services from the company in the next 3 months h. The content of this research report has been communicated with the company, following which this research has been materially amended before its distribution i. The company is a client of the stock broking division of the Meristem group. j. The company is a client of the investment banking division of the Meristem group. k. The company owns more than 5% of the issued share capital of Meristem l. Meristem has other financial or other material interest in the company. Conflict of Interest It is the policy of Meristem Securities Limited and its subsidiaries and affiliates (Individually and collectively referred to as Meristem ) that research analysts may not be involved in activities that suggest that they are representing the interests of Meristem in a way likely to appear to be inconsistent with providing independent investment research. In addition, research analysts reporting lines are structured so as to avoid any conflict of interests. For example, research analysts are not subject to the supervision or control of anyone in Meristem s Investment Banking or Sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the 4 P a g e
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