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Flour Mills Raises Bond to Bolster Balance Sheet as Earnings Surge

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Flour Mills Nigeria Plc, the biggest miller by market value, has listed the last series of bond issuance on the bourse as part of measures to bolster the balance sheet as the company earnings surged even amid the coronavirus pandemic.

The miller, with a diversified product base that is making inroad into Nigeria’s market, is looking to raise as much as N50 billion ($138 million) via the securities, of which N20 billion is planned for the first quarter.

“We have been able to secure the loans at 6.25 percent and 5.50 percent and part of the proceeds will be deployed to pay our debt and fund our future expansion plans such as the backward integration programme,” said the company Chief Financial Officer Anders Kristiansson.

Analysts say the company is taking advantage of low borrowing costs to deleverage its balance sheet and they added that such a strategy will further magnify profit even amid the economic downturn.

As of September 2020, Flour Mills had total debt (long and short term) of N129.20 billion, which represents a 24.21 percent uptick from 2019’s N104.01 billion. Finance cost increased to N9.95 billion in the period under review as against N8.83 billion the previous year.

A breakdown of unsecured borrowing shows the consumer goods giant has an obligation to the Bank of Industry (BOI), N25.16 billion; Real Sector Support Fund Facility, N20.01 billion, and Commercial papers and bonds, N69.34 billion.

However, Flour Mills is not a zombie company as its operating income covers interest expenses. Its operating income is 2.31 times interest, according to data gathered by MoneyCentral.

Despite the wrought caused by the coronavirus pandemic, weak consumer purchasing power, and decrepit infrastructure, Four Mills’ net income surged by 68.25 percent to N9.93 billion in September 2020 from N5.90 billion the previous year.

Revenue spiked by 31.15 percent to N355.10 billion as the border closure was a boon for the company, clipping the wings of smugglers and increasing patronage.

As a result of currency devaluation pressures, Flour Mills’ cost of sales was up 27.54 percent to N304.82 billion in the period under review as against N238 billion the previous year.

Analysts have been bullish over the stock of the consumer goods giant and they expect the vaccine roll out, rebound in oil price to add impetus to earnings.

Flour Mills shares closed at N31.60 as at 2:00 pm Lagos, exceeding the N31.40 target price set by analysts at Chapel Hill Denham in a recent note to clients.

Flour mills trades at a full year (FY) Enterprise Value (EV) to EBITDA of 3.8x and P/E of 8.4x, compared to Emerging Markets and global peers average of 13.6x and 18.1x respectively.

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