Flour Mills issues N40bn Commercial Paper to support short-term working capital
...stock gets analysts 'sell' rating
Flour Mills of Nigeria Plc series 1 and 2 Commercial Paper (CP) issuance of up to N40billion under its N200billion Commercial Paper programme is open and scheduled to close on Monday February 20, 2023.
The proceed of the issue will be used to support the issuers short-term working capital and funding requirement.
Flour Mills last month released its unaudited nine months (9M) financial results which shows remarkable revenue growth.
In the nine months 2023 period, the company achieved over N1trillion (N1.114trillion) revenue for the first time, demonstrating sustained momentum across all business segments compared to previous year (N825billion).
The Nigeria’s leading food and agro-allied business and owners of the iconic brand, ‘Golden Penny’ said its continuous product innovation and effective route-to-market strategies were largely responsible for the continued solid financial performance across the Group’s core business segments with the Honeywell integration well underway and performance in line with integration plan.
Overall revenue grew by 35percent across all business segments, with Food, Agro-Allied and Sugar all growing between 34 percent to 39percent respectively. Gross profit reached N103 billion in 9M’ 23, up 29percent compared to 9M’ 22 and 33percent quarter-on-quarter (QoQ). Operating profit grew by 28percent in 9M’ 23, with a 32percent growth quarter on quarter.
In their February 6 note to investors, Vetiva research analysts said “Flour Mills margins remain a cause for worry, as the
company is increasingly unable to turn its significant topline expansion to
corresponding bottom line growth. Furthermore, the addition of Honeywell Flour has also dragged margins lower. In addition, while we admit that the value strategy has been quite key in growing volumes, it has provided lean
Read also: CBN directs customers with below N500,000 to banks for deposit
The analysts further said: “We believe that the company needs to overhaul its margins; however, with its exposure to the international markets, especially for wheat, this poses a strong challenge. More so, barring any refinancing opportunities, Flour Mills debt remains a burden to profitability. Summarily, our growth expectation for full year revenue remains strong at 34percent to N1.6 trillion, driven by the company’s focus on product portfolio expansion to meet value consumer needs. However, with our outlook for margins, we expect bottom-line to decline by 45percent to N15.5 billion. Arriving at a target price of N29.38 per share (a 2percent downside to current valuation), we rate Flour Mills a sell”.
Boye Olusanya, Group Managing Director, Flour Mills had while commenting on the Q3 financials, said: “The Q3 earnings trend is a clear demonstration of the Group’s commitment to carrying out its overall long-term strategy of maintaining growth and sustaining profitability by significantly investing in the development of local content through product innovation across our core value chains.”
“Also, as is established by the significant increase in revenue and growth from the Agro-allied category of the Group’s touchpoints, we are committed to achieving economies of scale in food production via crop-specific value chain by increasing productivity and ultimately driving the nation’s attainment of food self-sufficiency,” he said.
Total results were affected by the integration of Honeywell Flour Mills Plc (HFMP) integration, which has been successfully ongoing since the takeover on May 12, 2022. As anticipated, the acquisition involved some initial integration costs and Honeywell posted a loss of N10.3 billion by at the end of December 2022. However, Honeywell is well on track to realize and exceed the anticipated benefits from the acquisition.
The profit performance for FMN excluding HFMP was in line with last year, during a somewhat turbulent quarter 3 showing the strength of the overall underlying business model.
The Group achieved N1 trillion in revenue for Q3’23, showcasing solid growth in Gross and Operating Profit.