Flour Millers: Industry players see improvements despite headwinds

Despite spending significantly on inputs, Nigerian Millers in the first quarter of 2019 saw improvements in bottom-line than a year ago although experts see modest growth in revenue for industry participants amid industry-wide challenges.

While the fruits of ongoing backward integration are yet to be reaped, high cost of importing wheat alongside infrastructure deficit especially logistics remain a bane to the millers. Industry players, however, show resilience in delivering value to owners in the period.

In their respective first quarters, the profit of three listed millers excluding the second-biggest firm by market value, Dangote Flour, grew some 19 percent to N4.4 billion even though the firms spent 89 percent of sales proceed on direct cost.

The analysis covered listed flour millers on the Nigerian Stock Exchange (NSE): Flour Mill of Nigeria, Dangote Flour, Honey Well, and Northern Nigeria Flour Mills Plc.

INDUSTRY OVERVIEW

The Nigerian flour industry is structured along oligopolistic lines with each player striving for a greater market share.

Flour Mill of Nigeria is currently the industry leader with a market share of 32 percent according to a KPMG wheat sector report. FMN is also currently the world’s second-largest flour miller according to USDA Foreign Agricultural Service. The Miller doubles as Nigeria’s largest importer of Soft Red Wheat (SRW), Hard Red Winter (HRW), and Hard White (HW) wheat types. Among listed players, FMN controls over 70 percent of the market

Dangote Flour holds 8 percent among listed and unlisted players. The sec

The third biggest miller on the Nigerian Exchange, Honeywell Flour Mill , controls 10 percent share among listed players and equally holds 12 percent in the entire mill industry. ond- biggest listed flour miller currently holds 16 percent, but the potential acquisition offer revised to N120 billion by Olam International through Crown Flour Mill might elevate the Singaporean-owned agroallied firm’s market share to

Analysts say consumer goods firms are the worst hit by the sluggish recovery of the Nigerian economy, which has been stuck in a low growth cycle.

Moreover, the income of Nigerian populace which is still dampened coupled with tough operating environment mean a tough time for industry players.

However, some listed millers were able to better margins amid economic and industry-related headwinds.

Of the four firms considered, only FMN and NNFM recorded higher net margin in the review quarter. The net margin of FMN and NNFM rose to 3.1 percent and 0.9 percent respectively from 2.7 percent and -15.8 percent a year earlier.

Honeywell Flour’s margin remained almost unchanged at 0.57 percent, while Dangote Flour bottomed competitors with a negative net margin of 12.6 percent.

Unlisted players in the industry include OLAM International, Dufil and the Seaboard Life flour Mill.

The USDA FAS estimates Nigeria’s wheat imports in Mid-year 2019/20 at 5.6 MMT, up some four percent compared to Mid-year 2018/19 based on growing food, seed and industrial (FSI) usage.

Nigeria’s wheat consumption in the period rose almost four percent to 5.26 million metric tons (MT) from 5.06 million metric tons (MT) a year ago.

Despite significant headwinds, analysts at Afrinvest expect revenue of millers to see modest growth in 2019 given the inelasticity of staple foods derived from wheat. Bread, semolina, and durum pasta and other wheat flour-based products are common in food items ion Nigerian households.

According to USDA FAS, Seventy percent of the flour milled from wheat in Nigeria goes into bread production; pasta and other wheat flour-based products (including semolina) account for the balance, however, the flour milled from local wheat is not economically suitable for the manufacture of bread, pasta, and noodles.

Nevertheless, Local wheat flour is however used in the preparation of more traditional/customary meals in Nigeria and the Sahel region.

SHARE PERFORMANCE

So far in the year, only Dangote flour has returned positive capital gains for investors among peers.

Shares of the miller has advanced some 200 percent since January with price at N20.60 per share when the market closed last Friday.

Flour Mill has a year’s return of -34 percent approximately while Honey well and NNFM are down 26 and 10 percent respectively since January.