Nov 9 (Lagos) -
FLOURMILL of Nigeria Plc sustained the positive top line growth momentum in its H1’17/18 result, reporting a 17% y/y rise in revenue to N 298 billion – in line with analyst estimates at Vetiva Capital Management Ltd in V.I.
The top line growth was driven by a recovery in volumes in the Food segment (up 18%) and improved performance of the Packaging segment (up 78%) – both contributing 78% and 3% respectively to revenue.
We highlight that despite a price cut implemented within the quarter (according to management), revenue came in flat q/q – supported by the strong volume growth. Particularly, revenue growth in the Agro-Allied segment came in at a modest 5% y/y.
The segment has in recent times been exposed to high input costs which the company has been unable to transfer to consumers – constraining margins.
Down-trending interest expense drives PAT beat
Gross margin came in marginally higher than we had estimated at 12.2%. However, on a y/y basis, H1’17/18 gross margin was down 237 bps to 11.9%, largely depressed by higher input costs from the Agro-Allied segment as earlier highlighted. Given this, Core operating profit came in 11% lower y/y despite the top line boost.
Buoyed by gains from FX hedges however,
FLOURMILL reported a N 5 billion Net Operating gain a significant improvement from the N 8 billion loss recorded in the corresponding period last year and 22% better than analyst had estimated. With this, H1’17/18 EBIT rose 54% y/y to N29 billion 4% above analyst estimate.
Though interest expense remains elevated y/y (up 54%), notable moderation have been recorded on the expense line in the past two quarters. As such, net finance costs came in 20% lower q/q in Q2’17/18 and 16% below our estimate. Overall, H1’17/18 PAT came in at N9 billion - 18% above Vetiva estimate and 45% over prior year’s performance.
Earnings estimates revised higher, strong FY’17/18 outlook
We raise our FY’17/18 revenue estimate 3% higher to N600 billion, reflecting the overall improvement in the demand landscape, particularly for the Food business, and an anticipated improvement in the Agro-Allied segment as the Company reviews its route-to-market for the segment.
Following a 20% upward revision of our net operating gains estimate and a lower net interest expense estimate (from N33 billion to N30 billion for FY’17/18), we revise our FY’17 PAT estimate to N18 billion (Previous: N13 billion, FY’16/17: N9 billion) and 12-Month Target Price to N40.82.
Analyst notes that
FLOURMILL is still in the process of raising equity capital to deleverage its balance sheet, with the Management stating that it is concluding details around timing and size of the issue.
reporting for easykobo.com on Thursday, Nov 9 2017 from Lagos, Nigeria
Source - analysts at Vetiva Capital Management Ltd in Victoria Island. All opinions, views, targets and forecasts expressed in this article are those of analysts at Vetiva Capital Management Ltd. Easykobo does not endorse or oppose any views expressed in this article