Economy
Flour Mills of Nigeria: Revision to Estimates
We revise 2018 forecasts for FLOURMILL following H1, wherein EBITDA and net profit were impacted by strong FX-linked net operating gains and double-digit revenue growth, which more than offset both weaker y/y gross margin and higher finance costs.
While we look for relatively (to H1-18) weaker earnings in H2-18, we expect they would be stronger compared to H2-17. Overall, we raise our EBITDA and net profit forecasts by 10% and 72% respectively for 2018F.
Upward revision to estimates was conservative (flattish and 2% respectively) for 2019-2020F. On net, we raise our TP for the stock by 35% to NGN38.89 and maintain HOLD rating.
We increase revenue growth forecast for 2018 to 8.9% (previously 7.6%) on stronger run rate of 17% in H1. The waning impact of prices on revenue was visible in Q2 growth rate (9.8%, the slowest pace since Q4-15/16), and management said – in obvious acknowledgement of the little room for price increases – it will leverage on increased sales volumes and marketing activities to boost top-line going forward.
We retain revenue growth forecast of 9.4% for 2019-2020, on continued resilience of the Food division, and stronger growth in the Agro-Allied and Packaging divisions, amidst the gradually recovering consumer purchasing power and spending from general elections.
Downside risks to volume, however, are (1) potentially intense competition (on improving dollar liquidity and FGN supply of subsidized fertilizers) and (2) the gridlock in Apapa (which negatively affects both the movement of goods out of FLOURMILL’s factory and customers’ access to the factory), on the back of the ongoing repair works, and the consequent congestion of the seaport.
We revise net operating gain forecast for 2018F to NGN7.7 billion (previously –NGN1.4 billion), following the strong formation (NGN5.1 billion) over H1, on the revaluation of liabilities (via FX hedges using NDFs and forwards) and biological assets (the sugar plantation). These items are excluded from our estimates for 2019-2020.
Notwithstanding the 331 bps q/q improvement in gross margin in Q2, we revise 2018 estimate lower by 69bps to 12.01% on slower-than-expected recovery (-237 bps in H1). While noting the risk from selling prices (given outlook for competition) and input cost (wheat prices for delivery in 12 months are higher by 14% for November contracts) pressures, we also point to tailwinds from (1) stable-strengthening exchange rate and (2) better energy mix from improved gas availability
We revise 2018F finance cost forecast lower by 4%, following the reduction of borrowings to NGN188.2 billion, from end-2017FY NGN241.6 billion. The modest revision of our forecast, including for 2019-2020, notwithstanding the sizeable reduction of outstanding loans, reflects the increased average interest rate (+226 bps since March ending) on more expensive debt mix. FLOURMILL’s management recently announced plans to raise NGN70 billion via Medium Term Notes. We have not factored this into our model, as management stated at the Q2 results analysts call that the signing will be in 2018, “depending on the evolution of interest rates.”
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange closed flat on Wednesday, August 5, as the market witnessed weaker trading activity with only two deals executed.
In the midweek session, the volume of securities exchanged by investors dropped 99.9 per cent to 802 units from the 1.6 million units recorded on Tuesday. The value of securities further decreased by 99.6 per cent to N208,240 from the preceding session’s N47.6 million, and the number of deals significantly went down by 93.9 per cent to two deals from the 33 deals recorded a day earlier.
Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 76.9 million units transacted for N5.5 billion.
GNI Plc was also the most active stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
There were no price gainers or losers yesterday.
As a result, the market capitalisation stood unmoving at N2.739 trillion, while the NASD Security Index (NSI) remained unchanged at 4,563.96 points.
By Adedapo Adesanya
The Naira slid against the US Dollar by N2.28 or 0.17 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, August 5, to N1,363.85/$1 from N1,362.55/$1.
The local currency also declined against the Pound Sterling in the official market during the session by N5.97 to close at N1,837.38/£1 compared with Tuesday’s closing rate of N1,831.41/£1, and against the Euro, it crashed by N6.54 to quote at N1,575.25/€1 versus the preceding session’s N1,568.71/€1.
But at the black market, the Nigerian Naira traded flat against the greenback yesterday at N1,400/$1, and also remained unchanged at the GTBank FX desk at N1,373/$1.
The Central Bank of Nigeria (CBN) says rates have narrowed to below two per cent, while the country’s external reserves have risen above $52.5 billion, reflecting the impact of its ongoing monetary and foreign exchange reforms.
CBN Governor Yemi Cardoso, represented by the Acting Director of Corporate Communications and Investor Relations, Mrs Hakama Sidi-Ali, disclosed this on Tuesday during the CBN Fair in Gombe. He noted that reforms introduced since 2023 had significantly reduced the disparity between the official FX market and the parallel market.
“The Naira continues to strengthen, with the spread between official and Bureau de Change rates now below two per cent,” he said, adding that reserves at $52.5 billion were supported by sustained inflows and renewed investor confidence in the economy.
Interbank FX transactions slid as weaker market activities dropped total Dollar volume exchanged to $75.35 million, a 51.8 per cent decline from $156.23 million in turnover quoted at the previous close.
The deals at the NFEM window also fell as data from the central bank put Wednesday’s quote at 82 from 139.
In the cryptocurrency market, major were down as global risk sentiment softened as a key world equity index slipped and chipmakers fell.
The MSCI All Country World Index snapped a five-day run to fall 0.2 per cent as chipmakers retreated on both sides of the Pacific. South Korea’s Kospi, a bellwether for the AI trade, dropped 4.4 per cent.
Ripple (XRP) depleted by 1.7 per cent to $1.05, Binance Coin (BNB) decreased by 1.0 per cent to $594.87, Cardano (ADA) depreciated by 0.9 per cent to $0.1884, TRON (TRX) shrank by 0.2 per cent to $0.3261, Solana (SOL) crumbled by 0.1 per cent to $74.00, and Dogecoin (DOGE) went down by 0.1 per cent to $0.0697.
On the flip side, Ethereum (ETH) gained 2.3 per cent to trade at $1,911.41, and Bitcoin (BTC) rose by 0.8 per cent to $64,759.28, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The domestic stock exchange rebounded by 0.05 per cent on Wednesday on the back of renewed bargain-hunting by investors, though the level of activity waned.
After bleeding for a few days, the Nigerian Exchange (NGX) Limited heaved a sigh of relief yesterday, as the All-Share Index (ASI) gained 109.41 points to close at 244,912.24 points compared with the previous day’s 244,802.83 points, and the market capitalisation garnered N71 billion to settle at N158.087 trillion versus Tuesday’s N158.016 trillion.
Business Post reports that despite the rebound recorded by Customs Street at midweek, the market breadth index remained negative, as there were 20 price advancers and 29 price decliners, implying bearish investor sentiment.
Linkage Assurance appreciated by 9.94 per cent to N1.77, AVA Capital rose by 9.55 per cent to N10.90, Fortis Global Insurance advanced by 7.69 per cent to N2.80, McNichols gained 7.34 per cent to finish at N5.85, and Coronation Insurance surged by 5.51 per cent to N2.49.
Conversely, Honeywell Flour depreciated by 9.94 per cent to N16.30, PZ Cussons gave up 9.94 per cent to trade at N74.75, Zichis crashed by 9.74 per cent to N20.76, Learn Africa slipped by 9.62 per cent to N9.40, and Neimeth tumbled by 8.33 per cent to N8.25.
The busiest equity was FCMB, with a turnover of 369.2 million units valued at N4.1 billion. Chams transacted 46.7 million units worth N201.8 million, First Holdco transacted 43.5 million units for N5.7 billion, Access Holdings sold 29.8 million units worth N778.0 million, and Linkage Assurance exchanged 19.6 million units valued at N33.5 million.
At the close of transactions, market participants bought and sold 824.1 million units worth N25.5 billion in 48,114 deals, in contrast to the 1.6 billion units sold for N28.7 billion in 54,160 deals a day earlier, showing a shortfall in the trading volume, value, and number of deals by 48.49 per cent, 11.15 per cent, and 11.16 per cent, respectively.
