Higher topline lifts overall performance
In Q1’25, Flour Mills reported a 67% y/y increase in revenue to ₦763.2 billion. This growth is attributed to higher pricing amid sustained volumes. Per segment, sales from food jumped 61% y/y to ₦489.4 billion, while the agro-allied segment saw a 68% y/y growth to ₦134.2 billion, driven by strong performance in the fertilizer and oil and fats businesses. Also, sales from sugar grew 92% y/y to ₦127.8 billion, while support services jumped 84%y/y to ₦11.8 billion.
For profitability, gross profit surged by 73% y/y to ₦86.9 billion, as gross margin inched up 0.4ppts to 11.4% during the quarter, reflecting better cost management. Meanwhile, OPEX increased by 71% y/y to ₦29.5 billion, driven by higher selling and distribution costs (+125% y/y). That said, EBIT rose by 68% y/y to ₦49.9 billion in Q1’25. On the financing leg, net finance costs rose slightly by 9% to ₦42.6 billion given the firm’s limited FX exposure. All in, FMN reported a profit after tax of ₦7.0 billion in the quarter, a turnaround from the loss of ₦9.3 billion in Q1’24.
Outlook
We are optimistic on FMN’s performance for the full year, anticipating robust double-digits growth across all business segments. This optimism is underpinned by expectations for sustained volumes in its food and sugar categories and higher volumes in its agro-allied and support services, amid higher pricings across board. Additionally, we expect FMN to continue to take advantage of the AfCFTA following its initial export in July 2024.
Consequently, we project revenue to rise 39% y/y to ₦3.2 trillion. However, operational expenses, are estimated to reach ₦100.9 billion (+42% y/y), to be primarily driven by increased marketing efforts to expand its retail product reach. As a result, EBIT growth is expected to moderate to 20% y/y, reaching ₦249.8 billion. Despite elevated expenses, we anticipate a significant bottom-line improvement to ₦49.1 billion (FY’24: ₦3.5 billion), on the back of base effects.
What shaped the past week?
Equities: This week, the local market traded in a mixed manner as it opened on a bearish note before picking up mid-week and closing in the green, largely due to gains in the banking sector. The ASI gained 0.88% w/w to settle at 98605.79 ppts. The banking sector’s green close (+5.145 w/w) was driven by gains in UBA (14.71% w/w), FBNH (9.76% w/w) and ZENITH (7.92% w/w). The Consumer Goods sector (+2.35% w/w) also closed in the green following gains in NB (+19.23% w/w), UNILEVER (+15.13% w/w), HONYFLOUR (+14.61% w/w), INTBREW (11.90% w/w) and DANGSUGAR (7.94% w/w). Other sectoral gains were recorded in Oil & gas (+0.97% w/w) following OANDO’s bullish week (+60.47% w/w); and the INSURANCE sector (+1.79% w/w). On the other hand, the INDUSTRIAL GOODS Space (-3.67% w/w) closed in the red as BUACEMENT (9.99% w/w) declined during the week.
Fixed Income: This week, the DMO through the CBN held an NTBs auction where it offered ₦216 billion worth of notes across the 91-Day, 182-Day and 364-Day maturities. At the end of the auction, ₦216 billion worth of notes were allotted across the three maturities with stop rates printing at 18.50% (prev: 18.50%), 19.50% (prev: 19.50%), and 21.89% (prev: 22.10%) respectively. Owing to this, system liquidity tightened and opened on Friday negative (₦12 billion negative), leading to a 778bps jump in OPR to 33.39%. At the secondary market, investors focused more on shorter-dated instruments even as the market traded on a mixed note. At the of the week, yield changes were seen on the 91-Day bill (+634bps), 182-Day bill (-6bps), 364-Day bill (-1bp), 2-year note (-19bps), 5-year note (+4bp), and 10-year note (-2bps).
Currency: Following CBN’s intervention this week, the Naira appreciated by ₦42.88 w/w to close at ₦1574.20 per dollar.
Domestic Economy: Despite the recent nationwide hunger protests, preliminary evidence suggests that inflation peaked in June and is set to moderate in July. We see inflation falling to 33.2% – 33.5% in July. As the protests could disrupt local petroleum supply activities, this represents an upside risk to inflation in the coming months. In the meantime, the downtrend in inflation will be underpinned by the downtrend in oil prices, relative stability in the exchange rate, and the domestic crude allocation to local refineries.
Global: The U.S. Labor Department reported on Thursday that initial claims for state unemployment benefits dropped by 17,000 to a seasonally adjusted 233,000 for the week ending August 3, the largest decrease in 11 months and below economists’ expectations of 240,000. This data was closely watched following a weaker-than-expected July jobs report that contributed to Monday’s global financial market downturn. The sell-off, driven partly by the unwinding of carry trades, led to a 12% drop in Japanese stocks and a 3% decline in the S&P 500. However, on Thursday, Wall Street rebounded, with the Dow Jones Industrial Average rising 1.76% to 39,446.49, the S&P 500 gaining 2.30% to 5,319.31, and the Nasdaq Composite climbing 2.87% to 16,660.02. In Europe, the FTSE 100 rose 0.3% on Friday, and the FTSE 250 gained 0.6%, though both ended the week lower, with midcaps down 1.5%. The pan-European Stoxx 600 increased by 0.57% to 499.18, slightly above its level from a week earlier. In Asia, Indian shares closed higher on Friday, reducing weekly losses, with the NSE Nifty 50 up 1.04% to 24,367.5 and the S&P BSE Sensex up 1.04% to 79,705.91. Meanwhile, Japan’s Nikkei 225 fell 0.7% on Thursday, ending a two-day winning streak, as the yen strengthened 0.6% to 146 against the U.S. dollar after losing nearly 2% earlier in the week.
What will shape markets in the coming week?
Equity market: With the rights and public offers from the banks drawing to a close, the banking sector posted a stellar performance this week, while industrials closed the week in the red due to decline recorded in BUACEMENT on Tuesday. We expect to see cautious trading start off the week, as investor focus shifts to the latest developments in near-term interest rates across the fixed income market.
Fixed Income: Following the postponement of the Bonds auction by a week, we expect the bonds market to resume trading on a calm note. So, we expect activities to be tilted towards the NTBs space albeit subdued by system illiquidity.
