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Flour Mills’ Shares Most Attractive Among Nigeria, Emerging Market Peers

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Flour Mills of Nigeria Plc’s low price to earnings ratio and dividend yields indicates re-entry point for investors as they will be paying less for an amount invested in the miller than any other firm in Nigeria and the emerging markets.

The largest miller by market capitalisation has a price to earnings ratio of 4.6 times, that compares to Tata Consumers, (63x), Hindustan Unilever, (60.40x); Nestle Malaysia, (50.80x); Juwei Food, (43.30x); Unilever Indonesia, (24.20x); BFR SA, (18.60x); IndoFood CPB, (14.0x).

On the home front and compared to local peers, its price to earnings multiples are cheaper compared to Unilever’s (42.40x); Nestle (26.20x); Nascon, (13.50x); Dangote Sugar, (6.4x), and UACN (5.8x).

To put things in a clear context, Four Mills’ P/E ratio of 4.60 times means it would take 4 and half years for an investor to earn back his initial investment through the company’s ongoing profit.

That compares to the ridiculously overvalued stock of Unilever that would take a rational investor 42 years to recoup his outlays.

Flour Mills of Nigeria has been growing earnings in the past two year even amid the coronavirus pandemic that disrupted economic activities and foreign exchange scarcity.

The closure of the land borders in 2019 by the federal government to curb the influx of fake and substandard products from neighboring African countries was a blessing in disguise because the policy stifled local competitors who had been by passing customs and bringing in counterfeit products into the country and creating intense competition.

Interestingly, the company benefited from the reopening of the economy or relaxation of the social distancing measures spurred consumption.

Analysts at Chapel Hill Denham list Flour Mills competitive advantage to include (1 wide distribution network across the country 2)aggregate extension of Agro business and dealer across key states in the country; 3) the company’s backward integration policies are aligned to the government.

The research added that the company has enjoyed customer recognition since 1960, introducing more products targeted towards low earners.

FlourMills of Nigeria share price is up 11.50 percent year to date basis-out performing the NGX ASI Index with year to date returns of -1.80 percent and +0.19 percent respectively.

The analysts have maintained their BUY rating on the consumer goods giant with an upgraded 12-month target price of N46.32 (previously N40.75).

The company is also a part of the country’s economic ecosystem and it is susceptible to rising cost of production as it imports most of its raw materials.

As a result of the foreign exchange scarcity and inability of the central bank to meet the foreign currency demand of manufacturers, millers are turning to unauthorized dealers for the purchase of dollars.

FMN revenue leads the pack

It is not surprising that Flour Mills of Nigeria leads the pack in revenue among the consumer goods firms in Nigeria.

It shrugged off the pandemic and recorded revenue of N771.60 billion, and that nearly doubles Nigerian Breweries’ (N418.50 billion); Nestle, (N342.90 billion); WAMCO, (251.50 billion); International Breweries, (163.9 billion); Guinness, (N153.30 billion); UACN, (N93.0 billion); PZ, (N82.0 billion), and Unilever, (N78.30 billion).

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