August 2, 2021/CSL Research
Flourmills Nigeria Plc (FMN) released its Q1 2022 financial results showing a 51.2% y/y growth in Revenue to N233.73bn from N154.57bn in Q1 2021. The growth in Revenue was supported by growth across major business segments as Agro-Allied (Up 44.1% y/y to N47.69bn), Sugar (Up 24.0% y/y to N33.53bn) and Food (Up 61.4% y/y to N146.93bn) all recorded double digit growth in Q1 2022. Net Income was up 9.6% y/y to N5.44bn in Q1 2022 from N4.97bn in Q1 2021.
Going forward, while we forecast sustained Revenue growth across the company’s major businesses, we expect the Food and Agro Allied businesses to be the growth drivers of the company’s Revenue. The investment in B2C channels, launch of new discount-priced products and re-sizing of some products to lower SKUs are strategic moves that we expect to support Revenue in the near-term. That said, we forecast a Revenue growth of 6.8% y/y to N824.21bn in FY 2022. Similarly, we project a rise albeit marginal (up 1.8% y/y) in Net Income to N26.09bn in the period.
We raise our target price to N61.97/s from the N36.12/s previously, implying an 104.9% upside from Friday’s closing price of N30.25/s. The increase in our target price was driven by a combination of the improving Net Income forecast, Revenue, and Cashflow outlook in the coming years – In summary the firm has significantly improved efficiency and we expect this to persist. Our valuation methodology is a single stage 5-Year Free Cash Flow to Firm (FCFF) model.