Month: January 2019

ARM Research”: Initial View – Flour Mills of Nigeria Plc Q3 19

Earnings drown on higher cost and operating expense

Yesterday, Flour Mills of Nigeria released its third quarter (FQ3 19) result for the period ended December 2019, which showed a 27.4% YoY contraction in EPS by 27.4% YoY to N0.69 following persisting pressure on margins from higher cost of sales (+7.3% YoY) and higher operating expense (+10.6% YoY). Accordingly, EPS over the first nine month of the year declined 40.4% to N1.93.

Despite the downward adjustment to prices which started in FQ1 19, the company reported slight revenue growth in FQ3 19 (+1.4% YoY N130.9 billion) with management linking this to accelerated volumes growth in the period.  According to management a sizeable chunk of the revenue growth emanated from the food segment following strong sales from Flour and Pasta products. Furthermore, the revenue growth was in-part fed by marginal growth in the Agro Allied and Support Services – driven by festivity related improved sales of edible oil and the bagging business respectively.

However, reflecting the 21% YoY increase in global wheat prices over FQ3 19, raw material costs expanded 4% YoY – the largest constituent of COGS –with cost of sales coming higher by 7.3% YoY. Accordingly, gross margin contracted 480bps YoY to 11.1%. This in addition to higher operating expense over the period (+10.6% YoY to N6.9 billion) resulted in EBIT margin contraction by 530bps to 5.8%.

On the positive, following the rights issue proceed of N39 billion in FQ4 18, which was used to pay down expensive short-term borrowings, coupled with the successful completion of the first tranche of the N70billion bond program with N20 billion being raised with 3 and 5 years maturity at respective rates of 15.5% and 16%, compared to average rates on short term borrowings of 18% in FQ3 18, finance expense in FQ3 19 declined by 40.1% YoY to N5.3 billion. Notwithstanding the moderation in finance cost, the combination of weaker gross margin and higher operating expense translated to a 27.4% YoY decline in PAT to N2.8 billion.

The key takeaway, as regards future performance, from our discussion with the management yesterday, was management’s plan to embark on corporate restructuring of the agro allied division to optimize investments and costs. The process has been initiated and expected to be concluded by end of the 2018/19.

Flourmill trades at P/E and EV/EBITDA multiples of 8.78x and 3.81x compared to Bloomberg Middle East and Africa peers of 18.1x and 7.2x respectively.

Download full report Initial View – Flour Mills of Nigeria Plc Q3 19 – Earnings drown on higher cost and operating expense

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5 Investment Principles to Use During an Election Period

Okoro was busy talking to himself, murmuring in his room after looking at his investment portfolio and reviewing the current situation in the country. What do I do now? Election is coming up in 3 months – will the incumbent be retained, or will a new president be voted into power? There is so much uncertainty. Where do I keep the funds I intend to invest, and where do I transfer my existing investment portfolio to maximize returns? Okoro was disturbed.

Just before the last election, he withdrew his investments from the stock market only to hear that there was a growth of 12.5% over a 3-day period immediately after the announcement that a new president was voted into power as well as the peaceful transition that followed.

Okoro wants to know how he can manage the situation this time to get the best value from his investment portfolio and ensure he never gets broke?

Hmmm…. Let’s try to provide some solution to Okoro’s dilemma……

Election comes every 4 years but we have financial goals to achieve regardless of who wins- incumbent continues with the existing policies or a new winner emerges and promotes new policies to better the achievement of the previous government. These actions are not expected to influence your investment goals if you always apply the five investment principles highlighted below;

1. Be clear on your financial goals- Why are you keeping the funds away? How long are you looking at? Apply the SMART acronym to your goals- ensure that your goal is Specific, Measurable, Achievable, Realistic and Time Bound.
2. Know your financial status- What is your Net worth? Deduct your liabilities (what takes money away from you) from your assets (what makes money for you). Measure your cash flow and expenses with the help of a Budget. All of these would help you create a convenient savings plan towards achieving your financial goals.
3. There are so many goals running through your mind. Therefore, it is required that we split our goals into 3 different categories namely: Short term (those you want to achieve in 2 years), medium term (those you want to achieve between 2 to 10 years) and long term (those you want to achieve above 10 years).
4. Implement your strategies- You need to understand that the different financial instrument available are suitable for specific category of goals identified above. For instance, short term instruments are Treasury bills, Money Market Fund. Medium Term are Balanced mutual fund while long term are Stocks and real estate. You might need a Financial Advisor to help out.
5. Review your investment- Align your investment plan with new policies to ensure you are making the most value for yourself. Always review your short-term investment every 3 months, medium term goals every 6 months, Long term goals annually.

These are tested and trusted principles that will provide the hedge required on your investment portfolio at all times regardless of what changes in the economy.

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4 reasons to get life insurance policy this 2019

The topic of getting life insurance is one you may not want to talk about. But because it is important that you ensure the financial security of people that depend on you, it is worth dealing with.

First, let us break down why you need one.

If you’re a breadwinner, you need a life insurance

Let’s be real, if you are the main financial backbone in your family and anything happens to you, your partner, children and anybody else that depends on you, will probably suffer financially. This is one of the major reasons people get life cover; to ensure a safety net for their loved ones in the face of unforeseen circumstances. With the rising cost of education, you can ensure that your kids will still be able to get the education they deserve should the worst happen.

It is not anticipating bad omen. It is simply facing reality and planning for it.

Got loans?

This is one that you might not have thought about. What becomes of your family if you have taken a loan or got a mortgage and something happens to you and there is no one to pay it off? Proceeds from your life insurance policy can be used to settle these loans ensuring that if the worst happens, your family doesn’t have an additional debt to deal with.

Single but responsible

Now, being single doesn’t mean you don’t have anyone that depends on you financially. It could be an elderly parent, sibling or relative. Having a life cover will make sure that these people you care about will be taken care of regardless of your presence, giving you and them peace of mind.

If you need to take care of future medical expenses

If you can’t predict the future, then you never know what may happen. A life protection plan comes in handy in the event of injuries, accidents or terminal illnesses which may prevent you from working. It saves you and your loved ones from unplanned and expensive medical bills.

While life insurance protects your family in the event of uncertainty, there are also lots of other benefits to getting one. Haven’t already taken out a life insurance? It’s not late.

Get in touch with us today via [email protected] to discuss your options.

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