January 31, 2022/Cordros Report

FLOURMILL published its 9M-22 unaudited results on Friday (28 January), reporting Q3-22 standalone EPS of NGN1.59 (Q3-21: NGN1.38) and 9M-21 EPS of NGN4.16 (NGN3.80), underpinned by solid revenue growth of 50.9% y/y in Q3-22 (9M-22: 48.6% y/y).

Revenue grew by 50.9% y/y in Q3-22 (9M-22: 48.6% y/y), driven by substantial growth across the Food (+55.4% y/y), Agro-Allied (+48.8% y/y), Sugar (+19.7% y/y) and Support services (+62.2% y/y) business segments. We believe the broad-based topline expansion reflects (1) gains from the recently introduced value product across noodles, pasta cereal, and edible oil; and (2) increased advertisement campaigns and accelerated expansion in the B2C channel, which according to management, constitutes c. 34.0% of Food revenue.

On a quarter-on-quarter basis, revenue grew by 4.5% with expansion in all business segments – Food (+58.4% q/q), Agro-Allied (+55.5% q/q), Sugar (+55.3% q/q) and Support services (+71.4% q/q).

Gross margin (-253bps) declined to 8.5% in Q3-22 (Q3-21: 11.1%) as an increase in international wheat prices (Average price: USD699.03/BU in Q3-22 vs USD528.73/BU in Q3-21), the company’s primary raw material propelled a faster growth in the cost of sales (+55.2% y/y) relative to revenue (+50.9% y/y). We also highlight further cost pressures from the pass-through impact of currency devaluation and the high inflationary environment. Consequently, EBITDA (-140bps) and EBIT (-31bps) margins came in lower at 7.5% and 5.4%, respectively, amid an 8.2% y/y increase in operating expenses.

Net finance costs increased significantly by 167.2% y/y, following a 36.6% y/y increase in finance costs and a 92.8% y/y decline in investment income. We attribute the higher finance costs to the increased loan facilities FLOURMILL obtained in the review period. As of 9M-22, total borrowings increased by 7.7% y/y to NGN142.87 billion (9M-21: NGN132.67 billion).

Overall, Q3-22 standalone PBT grew by 8.6% y/y to NGN9.77 billion (Q3-21: NGN9.00 billion). Following a tax expense of NGN3.35 billion, PAT printed NGN6.52 billion (Q3-21: NGN5.65 billion).

Comment: We like that FLOURMILL maintained broad-based expansions across all business units, reflecting positive results from product innovations, investments in its route-to-market strategy and operational efficiencies. However, we think the company’s elevated costs, which translated to weak margins, remains a source of concern. Nonetheless, we believe the company remains well-positioned to maintain decent topline growth given its well-diversified product portfolio and the inelastic demand facing its products. Our estimates are under review.