Flour Mills of Nigeria Plc


Company Overview
FLOURMILL, a foremost food and agro allied company, was established as a private company in September 1960. It is a highly diversified company; its broad product portfolio includes flour milling, production of pasta, noodles, sugar edible oil, farming, clearing and forwarding and logistics. The company boasts of the prominent golden penny brands such as Golden Penny Prime Flour and Golden Penny Semovita.

It became a public company in 1978 and was listed on the Nigerian Stock Exchange in the same year. FLOURMILL is a subsidiary of Excelsior Shipping Company Ltd, Liberia which controls 52.2% of its shareholding.

The company grows its business through both organic and inorganic means; it embarks on backward integration to secure assured source of supply and source for materials locally. The management continuously embarks on product innovation. It divested from United Cement Company of Nigeria Limited and FMN Registrars Limited.

Mr. John G. Coumantaros chairs the Board of Directors while Mr. Paul Miyonmide Gbededo holds sway as managing director.

Investment Thesis
In order to streamline operations it merged with subsidiaries which include Golden Noodles Nigeria Ltd, Golden Transport Company Ltd, FMN Cement Industries (Nig.) Ltd, New Horizon Flour Mills Ltd, Quilvest Properties Ltd. This would lead to cost savings and boost earnings and margins.

FLOURMILL is a high-geared company; it has low profit margins because of high cost of materials. FLOURMILL is committed to paying down its debt. Substantial capital investment has impacted free cash flow adversely. We expect this investment to yield positive results in the nearest future.

It has broad product portfolio and management’s resolve to source for materials locally will pay off going forward.

The company may run into choppy waters if its mounting debts are not controlled. Consequently, the shareholders approved the issuance of NGN40 billion rights issue in 2015 to pay down its debts and improve working capital. However, we believe that it may be difficult to raise shares now owing to harsh economic conditions that have eroded consumers’ purchasing power and made corporate earnings vulnerable.

Though the company trades within our fair value estimate, we maintain a hold position on FLOURMILL in the light of its worsening fundamentals. We will keep a close watch on the company to see how things pan out in the nearest future.

FLOURMILL has an adjusted Earnings Power Value of NGN28.47. Book Value Per Share was NGN36.5 and P/E is 3.8 times. Currently, it trades at 0.6 times book value and 0.2 times sales.

We have estimated that a share in the company is worth between NGN20 and N31.5. A return of 35.3% is expected in the next three years.

Financial Overview
FLOURMILL’s revenue of NGN342.6 billion translates to a hike of 11% compared to a fall of 5.2% achieved in the previous year. It has been growing its gross and net earnings by 4.3% and 23.1% respectively over the past three years.

PBT leapt 48.7% from NGN7.7 billion to NGN11.5 billion while PAT jumped by 70.4% to NGN14.4 billion at year end. Gross margin and PAT margin closed at 11% and 4.2% respectively. High cost of materials is the major factor responsible for low profit margins.

RoE gained 5.4% to close at 15.1% while RoA moved up by 1.7%.Both EPS and BVPS added 19.6% and 1.2% respectively on a 3-Year CAGR basis.

FLOURMILL is highly indebted with interest payment surpassing operating profit in some years. However, operating cash flow covers interest payments. The company has started generating positive free cash flow.

Business Risk
FLOURMILL is a major player in the market with its iconic brand golden penny. The company is capital-intensive, highly indebted and plagued by high costs. We believe that revenue could be improved if markets outside Nigeria are explored by the company.

Recommendation: Hold

Vital statistics of Flour Mills of Nigeria