NIGERIA – Flour Mills of Nigeria Plc has made a comeback in the first quarter of the 2025 financial year, returning to profitability after a challenging 2023/2024 financial year.  

The company reported a pre-tax profit of US$9.6 million for the quarter ended June 2024, a striking recovery from the pre-tax loss of US$12.4 million recorded in the same period the previous year.

This resurgence is particularly notable given the company’s struggles in the 2024 financial year, which ended in March 2024 with a pre-tax loss of US$510,000. The previous year was fraught with challenges, including Naira devaluation and rising interest rates, impacting the company’s financial stability.

Prior to its losses in 2023/2024, Flour Mills of Nigeria had consistently reported profitability.

Between 2019 and 2023, the company’s pre-tax profit grew from US$13.1 million to US$55.8 million, reflecting a compound annual growth rate (CAGR) of 41%. However, the sharp contrast between this historical profitability and the 2024 financial year’s losses raises questions about the sustainability of growth amidst ongoing macroeconomic pressures.

In the 2023/2024 financial year, Flour Mills saw a substantial 49% increase in revenue, reaching US$3.05 billion.

The Food segment, which remains the primary revenue driver, grew by 51% to US$2.05 billion, contributing 66% of total revenue.

This growth was partially driven by price adjustments to counter the effects of Naira devaluation and enhance business-to-consumer (B2C) margins. However, the company’s heavy reliance on this segment poses a risk if it faces downturns.

Despite strong revenue and operating profits, gross and operating profit margins showed only modest improvements.

The gross profit margin increased by 3% to 12%, and the operating profit margin rose by 69 basis points to 9%. These margins indicate that high costs of raw materials and packaging are absorbing a significant portion of revenue, narrowing profitability.

Impact of foreign exchange losses

Foreign exchange losses, which reached a record US$176.5 million in 2023, also impacted the company’s financial performance.

In the first quarter of 2025, foreign exchange losses amounted to US$38.3 million, representing a 25% increase from the same period the previous year and 21% of the total losses recorded in the previous year. This escalating loss could potentially offset gains achieved through operational efficiencies and revenue growth.

Looking ahead, Flour Mills of Nigeria remains cautious about macroeconomic headwinds expected to persist throughout the 2024/2025 fiscal year.

Nonetheless, the company is confident in its robust business model, which has been stress-tested over the years. In Q1, the company successfully reduced its debt profile by approximately 5% to US$777 million, contributing to a 3.33% decline in interest expenses.

Investor sentiment appears optimistic, as evidenced by the share price, which has surged by 39.2% year-to-date as of August 9, 2024. This is a notable improvement from the 18% gain recorded at the end of Q1 2024 and reflects growing confidence in the company’s financial recovery.

The investment case for Flour Mills of Nigeria Plc is strong, with favorable metrics including a Price-to-Book Ratio (P/B) of 0.85x, a Price-to-Sales Ratio (P/S) of 0.07x, and a Price-to-Earnings Ratio (P/E) of 10.24x.

The company’s dividend yield stands at 4%, with a total return of 43%. The low P/B and P/S ratios suggest that the stock is undervalued relative to its book value and sales, while the P/E ratio indicates a reasonable valuation based on earnings.

Combined with a 4% dividend yield and a total return of 43%, these factors make Flour Mills of Nigeria Plc an attractive investment opportunity.

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