With consistent earnings growth even amid an economic downturn, it is not impossible for the share price of Flour Mills of Nigeria (FMN) Plc to go vertical.
Of course, the sustained improvement in market sentiments and stock market rally in the past few weeks buoyed by aggressive policy rate cuts by the central bank left investors swooping on shares of dividend paying stocks.
In the past three years, Flour Mills have been recording double digit growth at the top line (revenue) and bottom line (profit), surmounting the coronavirus pandemic induced headwinds and tough operating environment.
Interestingly, the company’s earnings beat analysts’ expectation, as it deserves the Buy recommendations placed on its stocks by investment houses across the country.
Read also: Flour Mill records biggest daily gain after revenue jumped 31% in H1’20/21 fin year
For the half year-ended September 2020, FMN’S net income surged by 68.30 percent to N9.93 billion from N5.90 billion, the highest in three years.
Revenue, which has been growing consistently in the last six years, spiked by 31.14 percent to N355.10 billion from N270.76 billion the previous year.
The largest miller by market capitalization in Africa’s largest economy has generated enough profit from its shareholders’ investment.
Return on average equity (ROAE) increased to 12.20 percent in September 2020 from 7.40 percent as at September 2019.
Return on average equity also followed the same growth trajectory as it increased to 8.60 percent in the period under review from 2.80 percent the previous year.
The company said the upsurge in profit and improved margins were largely driven by contribution from its agro-allied business.
It explained that the agro-allied segment saw very strong improvement in the edible oils and fats, protein and fertilizer businesses following the investments over the last few years.
While other consumer goods firms are grappling with deteriorating margins caused by spiraling cost of production and a weak consumer purchasing power, Flour Mills’ has been spending less on input cost to produce each unit of product.
Cost of sales fell to 85.40 percent in September 2020 from 88.28 percent as at September 2019.
It is successful in producing profit over its cost as gross profit margin increased to 14.16 percent in the period under review from 11.74 percent the previous year.
The company is able to translate more of its sales into profit at the end of the period as net income margin increased to 2.80 percent in the period under review from 2.18 percent the previous year.
Flour Mills has generated more money from its core operation as earnings before interest taxation depreciation and amortization ( EBITDA) margin increased to 10.10 percent in the period under review from 9.90 percent the previous year.
“With this result, our business has once again shown its resilience, by following the path of sustainable growth despite the prevailing challenges in both the local and global economy,” said Paul Gbededo, Group Managing Director /CEO, FMN Plc.
“In line with our vision to continue to grow value for our investors, management will for the remaining part of the financial year continue to concentrate on improving operational effectiveness through accelerated strategies for group-wide cost optimisation, which will ensure sustainability in the current market climate, while we continue to invest in growing the business further.”
The company’s free cash flow increased by 65.60 percent to N29.88 billion from N18.04 billion the previous year; this means the miller has the financial strength to meet its obligations, pay dividend, and finance future expansion plans.
Flour Mills is utilizing its property plants and equipment to generate higher sales and profit as fixed asset turnover (FAT) increased to 1.65 times in the period under review from 1.24 times the previous year.
