Summary
The unaudited accounts of Honeywell Flour Mills plc (Honeywell) for the period ended December 31, 2014 shows that its turnover decreased by 8.28% to N37.64bn, compared with N41.03bn recorded in the corresponding period of 2013.
The cost of sales decreased during the period under review by 7.77% to N30.69bn from N33.27bn recorded in Q3 2013. The Profit Before Tax (PBT) stood at N1.23bn, representing a decrease of 54.58% from N2.03bn recorded in the corresponding period of 2013.
The decrease in the PBT was due to the exchange rate loss of about N903mn. The tax provision decreased by 61.76% to N257mn from N672mn, leading to a Profit After Tax (PAT) of N968mn in Q3 2014 from N2.03bn in the corresponding period of 2013, representing a decrease of 52.24%.
Honeywell’s performance in Q3 2014 was affected by the following factors: The current challenges with regards to the disruption in gas supply during the year; high import costs of key raw materials; instability in the foreign exchange market and the devaluation of the Naira; and the security challenges in the Northern States. Moving forward, the company intends to increase the production of all its products in order to meet the growing demand in the Nigerian food market in the next few years.
Valuation
We considered the following factors in arriving at our 5-year forecasts
Positive Drivers:
The company’s wide array of food products; the expansion strategies of the company (Sagamu Plant); the increasing demand for food products in Nigeria; and the short-to-medium term drop in the price of wheat.
Negative Drivers:
The impact of foreign exchange fluctuations on costs; the shortage in gas supply in the short-term; and the security challenges in the country in the short-term. Our fair value for Honeywell Flour Mills share price is N4.45 per share and the stock is currently trading at N3.98.
The total return, a combination of the capital appreciation and the dividend, generates 16.44%.
This is higher than the current yields on the FGN Bond of 13.83%. We therefore place a ‘buy’ on the shares of Honeywell Flour Mills plc at the current market price.
