FLOURMILL | Flour Mills of Nigeria Company Update : We remain cautious on the near-term outlook

    We revise our FY'22/23 revenue projection to N1.5 trillion (vs N1.4 trillion per our last forecast). This revision primarily reflects sustained revenue enhancement strategies (improved route-to-market and expansion of fertiliser blending capacity) and the impact of higher product pricing. Already, the company has attained 75.3% of our full-year projection, with north of 34.0% sales traction across the Food, Agro-Allied, and Sugar segments.

    Despite the robust topline projection, we expect FY'22/23 gross margin to remain mostly unchanged on the impact of the 29.5% YoY increase in wheat prices over 2022. While we note the 6.4% decline in wheat prices in the first quarter of 2023, the passthrough to the company's numbers will likely become evident in the next financial year (FY'23/24 gross margin projection: +20 bps YoY to 9.5%) due to the historical lagged impact. 

    Elsewhere, the weaker leverage ratio linked to the acquisition of HONYFLOUR is likely to stoke more finance cost pressures in FY'22/23, with interest coverage expected to nosedive to 1.4x from 2.6x in FY'21/22. However, management has prioritised its ongoing balance sheet restructuring and reduction of foreign currency exposure to tackle future negative passthrough to earnings. Consequently, while we project a 55.0% YoY contraction in PBT to N18.6 billion in FY'22/23, we see latitude for a PBT CAGR of 33.0% over the next five years. This PBT CAGR also captures the potential impact of continued commodity price correction.


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