Flour Mills Will Achieve 137.3% EPS Growth—Analysts

By Modupe Gbadeyanka

One of the top players in the flour milling sector in the country, Flour Mills of Nigeria Plc, has been tipped to record a year-on-year expansion of 137.3 percent in its earnings per share in its present financial year ending March 31, 2020.

In its first quarter ended June 30, 2019, the firm recorded an impressive 16.5 percent year-on-year EPS growth from a finance cost-induced negative EPS printed in the fourth quarter of ended March 31, 2019.

According to analysts at Cordros Research, the upsurge in earnings largely stemmed from the blend of lower effective taxes (-700 bps) and material decline in finance charges (26.6% y/y) as the company used the proceeds from the rights issue earlier in the year to pay off its expensive borrowing.

For evidence, the company’s total debt dipped by 22.0% y/y to N133.9 billion, split into overdraft (12% of total), short term (32% of total), and long term (48% of total), respectively.

Earlier this year, Flour Mills raised N39.0 billion via a rights issue and utilized the proceeds to pay off its expensive short-term debt. Consequently, the company recorded a 22 percent decline in finance charges.

Looking ahead, Cordros Research says it sees scope for further debt reduction given the group’s less aggressive CapEx programme and better revenue outlook. It said management has guided to CapEx intensity remaining low in the medium-term, pointing out that there is the belief that the group’s FCF generation is looking set to be boosted and net debt reduced.

“From our previous estimate of N2.27 per share, we now forecast Flour Mills will deliver a +137.3% y/y expansion in EPS (N2.31 percent share) in 2020E, driven by the combination of (1) low base from the prior year, (2) sizeable decline in finance charges, and (3) managements cost-cutting tactics,” Cordros Research analysts said.

“While we are concerned about the weak food margin, on account of consumer downtrading, we like that the sugar segment is now at break-even point, and despite the strength of competition, we believe margin growth prospect is high.

“On our estimates, the stock is trading at 2020E P/E and EV/EBITDA of 6.41x and 3.38x, relative to 17.5x and 13.5x for Bloomberg Middle East & Africa peers.

“Our revised TP of NGN26.59/share (previously: NGN25.23) implies a total return of 76.0% as at the closing price yesterday. We retain our BUY rating on the stock,” the Lagos-based research company said in its report.

Business Post reports that shares of Flour Mills were traded on the floor of the Nigerian Stock Exchange (NSE) on Wednesday at N15.30k each, going down by 0.30 kobo or 1.92 percent at the close of business.