October 27, 2021/CSL Research

In its recently released H1 2022 scorecard, Honeywell flour mills plc’s Revenue grew 19.3% y/y in H1 2022 to N67.91bn from N56.91bn in the corresponding period in 2021. The business reported growth across all its Revenue units – Apapa (up 19.4% y/y to N53.0bn), Sagamu (up 14.7% to N11.74bn y/y), and Ikeja (up 37.7% y/y to N3.17bn). The Apapa segment continues to lead, constituting 78.0% of the total topline, with 19.4% y/y Revenue growth in the period. On a q/q basis, total Revenue was up 5.4% in Q2 2022 to N34.85bn from N33.06bn in Q1 2022. 

Cost of Sales (adjusted for depreciation) outpaced Revenue growth (+19.3% y/y), up 27.5% y/y to N59.71bn from N46.82bn in H1 2021. We believe the rise in Cost of Sales is largely occasioned by the exchange rate uncertainties and the rising local input prices. Consequently, Gross Profit dipped by 18.8% y/y to N8.19bn from N10.09bn in H1 2021, leading to a 5.7ppts drop in Gross Margin to 12.1% in H1 2022.

Selling and Administrative Expenses (Adjusted for depreciation), however, moderated, down 40.1% y/y from N4.25bn to N2.54bn in H1 2022. This development moderated the decline in Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA), down only 3.2% to N5.65bn from N5.84bn in H1 2021. Conversely, the firm reported a 14.3% y/y rise in Depreciation and Amortization to N4.10bn resulting in an 8.5% y/y decline in Earnings Before Interest and Tax (EBIT) to N4.1bn from N4.48bn in H1 2021.

Net Finance Income plunged in the period, shedding 17.2% y/y to N2.77bn from N3.34bn in H1 2021. We observed that this was largely due to an improvement in Finance Cost (down 10.2% y/y to N3.01bn) and the sudden emergence of the Finance Income subcomponent of the accounting line, totaling N0.23bn which is an offshoot of the improvement in cash and cash equivalent which has grown 34.8% to N27.31bn ytd (out of which N14.30bn is tied in short term interest earning deposit).

As a backdrop to the improved Finance Cost position, normalized Profit Before Tax grew by 27.4% y/y to N0.30bn from N0.23bn in H1 2021. Growth (up 72.9% y/y) in Tax Expense however, weighed on Net Income as it dipped 4.3% y/y to N0.13bn from N0.14bn in H1 2021. Despite the dip, Net Margin remained unchanged in the period.

We are reviewing our numbers. Currently the stock trades at N3.65/s as of close of trade today.

Honeywell H1 2022

Source: Company financials, CSL Research