• Sunday, June 16, 2024
businessday logo


FMN gathers momentum amid market gains, high earnings expectation  


Flour Mills of Nigeria (FMN) surpassed its industry peers in the Nigerian Stock Exchange, recording the highest trade in the previous week.

At the close of trading on Friday, the flour miller had a share price of N23.50 per share.

The share of the giant miller rallied 19.29 percent from December 31 to January 17—the highest among the major fast-moving consumer goods (FMCGs) firms listed on the Nigerian bourse.

FMN’s was followed by Dangote Sugar with 7.72 percent share gain; Honeywell with 4.04 percent rise and PZ Cussons with  3.54 percent gain. However Nestle Nigeria and Nigeria Northern Flour Mills (NNFM) both gained zero percent increase during the period under review.

This could prove good value for investment in a depressed stock market.

Flour Mills of Nigeria is an industry leader with a market share of 32 percent, according to a KPMG wheat sector report, and controls over 70 percent of the market. It is also Nigeria’s largest importer of soft red wheat, hard red winter, and hard white wheat types.

A year-to-date analysis of FMN’s stocks reveal that overtime, the company recorded a double-digit growth in trading shares as well as a rise in its stocks, heightened by the border closure by the federal government in August 2019.

Despite analysts’ opinion of consumer goods firms being the worst hit by the sluggish recovery of the Nigerian economy, which has been stuck in a low growth cycle, low purchasing power of the consumers and a tough operating environment, the company has managed to survive.

In a public statement from the company concerning its operational review, it says although the revenue from some of its food businesses was adversely impacted by lower volumes, pasta and noodles recorded positive growth in base products and the sugar business continued to show remarkable growth in line with projections.

While the fruits of on-going backward integration are yet to be reaped, high cost of importing wheat and infrastructure deficit, especially logistics, remain a bane to the millers. FMN, however, has shown resilience in delivering value to its owners, consumers and shareholders.

Analysis of the company’s second quarter of 2019 shows that the firm recorded revenue of N270 billion, representing a marginal 0.37 percent increase from the N269 billion recorded in the corresponding period of 2018.

Its profit before tax stood at N8.6 billion, which was a 4 percent increase from the N8.3 billion achieved the previous year. Similarly, its profit for the period stood at 5.89 billion after a tax payment of N2.7 billion, marking a 16 percent increase from the N5 billion recorded in the previous period.

The food segment contributed majorly to its revenue with N170 billion while its agro-allied and sugar value chain segments contributed N49 billion and N44 billion respectively. However, its support services contributed the least with N6 billion.

Despite engaging in backward integration, the company spent the sum of N205 billion on materials sourcing in Q2 2019.

FMN is also projected to have improved earnings in 2020 with higher demand for pasta due to border closure, according to a report on FMN by Chapel Hill Denham Research.

“Renewed demand for pasta to boost food turnover in FY-20E, as the recent border closure has impacted rice importation, inducing a shift in demand to pasta (Spaghetti, Macaroni etc). Notably, our market price survey indicates that FMN’s Golden Penny Spaghetti retail price has increased to an average of N235/500grams SKU (from an average of N200),” Chapel Hill Denham Research said.

“We expect this development (price increase) and higher sales volumes to support FMN’s food segment turnover over the next two quarters in FY-20E. We also expect the sugar and agro-allied segments to maintain current growth trajectories pushing FY-20E turnover to N548.32bn, up 4.0 percent YoY from N527.41bn in FY-19,” the report further said.

The company, according to Bloomberg, is making plans to raise N50 billion through a bond sale programme, of which 20 billion naira ($138 million)  is planned in the first quarter. Proceeds from the sale will be used to refinance debt and buffer working capital amid low borrowing cost.

Nigeria President Muhammadu Buhari commissioned FMN’s N50 billion Sunti Golden Sugar Estates in March 2018, featuring 17, 000 hectares of irrigable farmland and a sugar mill processing 4,500 metric tons (MT) of sugarcane per day.

At full capacity, the estate can produce 1 million tons of Sugarcane which roughly translates into 100,000 MT of sugar yearly.

According to John G. Coumantaros, chairman of FMN, the Sunti Golden Sugar Estates achieved its first development target of reaching 2,836 hectares of land under cane in July 2018.


Gbemi Faminu