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.

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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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