Flour Mills Stock at 10-year High as Backward Integration to Bolster Profit

Flour Mills of Nigeria Plc stock hit a 10 year high this week, closing at N47.40, as a backward integration policy that reduces the company’s reliance on foreign currency is expected to bolster future profit.

It is interesting to note that with the positive prognosis about future earnings expansion, the largest miller in Africa’s most populous nation is poised to equal or ellipse its record share price of N66.15 hit in 2014.

The consumer goods giant’s shares has gained 42.2 percent so far this year and it has a market capitalisation of N192.71 billion.

There are indications investors of Flourmills will be smiling to the bank this year as a backward integration policy tenaciously held onto by the management will reduce the company’s dependence on foreign currency for the importation of raw materials and help reduce production costs and underpin profitability.

Notably, the company’s cost-to-sales margin has consistently exceeded 85 percent for the past seven years. Simply put, this means that it spent N0.85 on input costs to produce each unit of product.

The company’s acquisition of Sunti Golden Sugar Estates Limited with its 17,000 hectares of farmland is a favorable step in its backward integration efforts aimed at reducing its vulnerability to FX volatility, according to analysts at CSL Srockbrokers Limited.

“We have a BUY recommendation with a target price of N53.70/s,” said analysts at CSL Stockbrokers.

It is noteworthy that the continuous expansion of the company’s revenue segments with the launch of Golden Penny Choco spread and the relaunch of golden bites ChinChin and the reintroduction of the Bagco Zerofly sacs is expected t0 support revenue growth.

Consumer goods firms were the hardest hit from the abrupt devaluation of the currency that stoked huge foreign exchange losses that tipped most of them over the edge while the unification of the exchange rate and removal of subsidy on fuel ballooned inflation that dampened consumer demand.

However, some firms whose products are inelastic were able to pass on higher input cost to consumers in the form of higher prices.

The National Bureau of Statistics (NBS) reported an increase in the country’s Consumer Price Index (CPI) for the twelfth consecutive month in the year to 28.92 percent year on year (YoY) (compared to 21.34 percent in December 2022).

As of September 2023, the company holds the leading position among consumer goods firms in terms of asset base, boasting a total asset value of N1.32 trillion.

Over the past five years, the company has demonstrated robust growth in its assets, achieving a CAGR of 21.86 percent, according to analysts at Meristem Securities Limited.

“We project an earnings performance of N19.26 billion in 2024FY and a net margin of 1.04 percent (from 1.92 percent in 2023FY),” said analysts at Meristem Securities.

Get More of our proprietary news and analysis as MoneyCentral is now on WhatsApp Channels  Follow the MoneyCentral Nigeria channel on WhatsApp: Click here!