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Experts see FMN’s acquisition of Honeywell positive for consumers, investors

A report by FBNQuest Capital notes that the capacity of a plant is a significant indicator of a company’s market share in the milling sector.

With the completion of the acquisition, FMN’s market share will rise to an estimated 42 percent, moving from the current 32 percent it has.

As a result, FMN will retain its position as the second-largest miller, however, with an increased capacity which will be 4.5 points behind Olam which has an industry market share of 44 percent.

This will expand FMN’s market reach as they optimize acquired networks which will encourage industry competition that will favor consumers.

Uchenna Uzo, a director at Lagos Business School who is also a consumer expert said the interesting consolidation will improve efficiency in the supply of flour-based products for consumers.

“The route to market operations will be integrated which will improve the distribution of products, furthermore, leveraging innovations the company will introduce a variety of products that will drive consumer satisfaction and maintain loyalty,” he said.

Uzo also mentioned that this will also impact the host communities of these firms as the backward integration drive is strengthened.

“This will foster higher domestic consumption as they explore opportunities using innovation and variety and improve the country’s export profile particularly with the implementation of the African Continental Free Trade Area (AfCFTA),” he said.

He added that some challenges may occur as consumers experience brand confusion hence, they need to be transparent about their activities to consumers highlighting necessary additions and subtractions.

FMN currently operates 17 high-level food-processing facilities across 12 states in Nigeria. HFMP operates 3 facilities in Lagos and Ogun, with a supply chain stretching across the entire country.

Read also: Honeywell -Flour Mills merger: A glimpse of things to come?

According to a September 2021 report by Agusto&Co, over the last five years, the food industry has increasingly become fragmented with heightening competition and thinning margins, owing to the entry of some fringe players causing a noticeable shift in product pricing.

“Flour Mills is expected to maintain its market leadership by deepening volume growth across its product markets, while aggressively pushing its new value brands to garner market acceptance. A wide product portfolio, diversified investments, and increasing financial flexibility, as well as access to the capital market, provides headroom for growth in the near term,” it stated.

For investors, experts say this will increase dividend benefits, as the company’s revenue and profitability increase over time.

“We believe the transaction has long-term competitive benefits for FMN, we also believe this deal is likely to be earnings accretive as long as FMN can sweat the assets better and derive synergies which are unquantified currently,” said Abiola Gbemisola, an associate at FBNQuest Capital Ltd.

FMN’s most recent six months financial performance for the period ended September 2021 shows that the company recorded a revenue increase of 47 percent moving from. N355 billion in 2020 to N522 billion in 2021 while its profit after tax increased by 6 percent to N10.5 billion from N9.93 billion.

The flour miller’s assets decreased by 1 percent to N536 billion from N544 billion, its liabilities also shrunk by four percent from N370 billion to N357 billion in the period under review.

Analysis of Honeywell’s financials for the same period shows that the company recorded a revenue increase of 19 percent moving from N56 billion in 2020 to N67 billion in 2021 while its profit after tax surged by 73 percent to N353 million from N204 million.

The company’s assets increased by 13 percent to N166 billion from N147 billion, however its liabilities increased from N89 billion to N108 billion representing a 21 percent increase.

Honeywell currently has a debt balance of N78.5 billion and a cash balance of N27.3 billion while FMN has about N142.5 billion in debt and N52.6 billion in cash.

Despite its debt burden, analysts at FBNQuest believe that FMN can comfortably finance the deal and would not have to use new debt, using its robust cash balance of N52.7 billion it had as at the first half of its 2022 calendar.

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