initiation of coverage flour mills of nigeria plc · initiation of coverage flour mills of nigeria...
Post on 02-Apr-2018
228 Views
Preview:
TRANSCRIPT
1
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Capacity Additions to Boost Topline
In this report we present our views on Flour Mills of Nigeria Plc (FLOURMILL) following its recent release of
Q1’14 and FY’13 results, and updates on the company’s recently commissioned 750,000 tonnes sugar refinery
and additional flour mills. Thus, we initiate coverage with a HOLD rating on the counter, as current price of
N83.90 represents an 8% upside potential from our FY’14 target price of N90.67
Gains from recent capacity expansion to boost turnover… During the 2013 fiscal year,
Flour Mills completed a number of projects expected to boost revenue considerably in
the medium term. The most important of these projects is the commissioning of the
750,000MT sugar refinery in Apapa Lagos, which has since begun operation, selling to
industrial customers, with plans to commence sale of retail sugar in the pipeline for
September. Based on the company’s guidance of a 100,000MT raw sugar importation
quota for the year, we estimate that about 93,500MT (using a standard 0.935 to refined
sugar ratio) of refined sugar would be produced and sold. We believe that the low
utilization of the installed capacity is due to the fact that the refinery has just been
commissioned and will not be used at full capacity, at least in the first year. Also in the
year, Flour Mills commissioned a 350,000MT pasta factory in Ogun State, and three new
flour mills in Apapa, Lagos. The company also disclosed plans to complete the capacity
expansion of the recently acquired Rom Oil Mills Ltd by the end of FY’14. The gains from
the recent CAPEX were evident in the company’s Q1’14 result, where topline grew by an
impressive 43% YoY.
…But elevated cost still poses threat to profitability: The positive showing in Flour Mills
revenue line was unable to trickle down, as PAT declined by 8% YoY in Q1’14. The poor
showing in Flour Mills bottomline was hinged on a faster rise in cost of sales, which
spiked 54% YoY, similar to the trend seen in the recently released FY’13 numbers, where
cost of sales also paced ahead of revenue. Whilst we do not have the segmental
breakdown of the Q1’14 numbers, we surmise that the sharp rise in cost of sales is
attributable to increased input costs in the food and agro allied business as average
wheat prices were up 8% YoY. We saw a similar trend in UACN’s H1’13 result (we
consider Flour Mills and UACN as comparables, as food and agro-allied business
contribute at least two-third in revenues for both companies) where the company
recorded higher costs in its agriculture related business. Overall profitability margins
were lower as both PBT and PAT margins came in lower for Q1’14, settling at 4.6% and
3.6% from 7.3% and 5.6% in corresponding quarter of the 2013 financial year,
respectively. For FY’14, we expect the recent investments in capacity to translate into a
41% YoY growth in topline, while we expect Flour Mills after tax earnings to rise by 40%.
Despite the 8% decline seen in Q1 after tax earnings, we expect some improvement in
the other quarters, based on the recent trend in quarterly PAT contribution to full year
earnings figure. Over the last four years (except for FY’13 where the company recorded
a loss in Q4 and FY’10 where Q4 contributed 50% to FY earnings) Q1-Q3 have accounted
for an average of 85% of FY earnings. Taking the above into account, our revised EPS for
FY’14 comes in at N4.55, 40% higher than FY’12 EPS of N3.24.
27 August 2013
Stock Data
Bloomberg Ticker: FLOURMIL:NL
Market Price (N) 83.90
Shares Outs (Mn) 2,386
Market cap (N’Mn) 200,158
Price Performance FLOURMIL NSE
12-month (%) 61 58
6-month (%) 10 8
YTD (%) 29 30
Key Ratios 2012A 2013A 2014F
EBITDA Margin 10.32% 6.55% 9.00%
EBIT Margin 8.21% 7.82% 7.41%
PAT Margin 3.24% 2.56% 2.55%
ROAA 3.60% 2.96% 3.58%
ROAE 12.66% 8.70% 11.11%
Valuation 2012A 2013A 2014F
P/E (x) 23.38 25.90 18.45
P/BV (x)
2.22
2.18
1.95
Div. Yield (%) 1.91% 2.38% 2.56%
0.80
1.00
1.20
1.40
1.60
1.80
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3FLOURMIL NSEASI
Analyst
Tochukwu Ezeoke*
Tochukwu.Ezeoke@cardinal-stone.com
YTD Price Performance (rebased)
Source: NSE, CardinalStone Research
2
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
FY’13 Review
Strong growth in Food business drives FY’13 topline…: Flour Mills grew revenue by 17%
YoY for FY’13, as turnover for the period came in at N301.9 billion, significantly better
than the moderate 8% YoY growth recorded in FY’12. The significant growth in revenue
was buoyed by strong showings in Flour Mills Agro-allied, Packaging, and Food
businesses as revenue for the trio grew 53%, 42%, and 26% respectively. The Food
business remained the largest contributor to topline, accounting for 73% of Flour Mills
revenue figure, while the Agro-allied business maintained a distant second place,
contributing 17% to turnover.
…But spike in input costs depress earnings: However, Flour Mills recorded a faster rise
in its cost of sales line (21% YoY rise), while selling and distribution expenses were up
34% YoY as the company expanded its sales force and increased marketing activities in a
bid to grow market share. From the company’s FY’13 presentation, we deduced that the
sharp rise in the cost of sales was on the back of the increase in prices of input materials
for the company’s Agro-alllied business. Our point is further buttressed by the 42% YoY
decline in Flour Mills agro-allied business PBT line, despite the 53% YoY rise in revenue,
which translated into a PBT margin of 1.8% for FY’13 from 4.6% for FY’12. On the other
hand before-tax earnings were up 75% YoY in the Flour Mills food business, the strong
growth was hinged on larger volumes and higher margins.
Thus margins came in lower: Overall, after tax earnings for the FY came in at N7.7
billion, down 0.5% YoY from the N7.8 billion figure posted for FY’12. Also, PBT and PAT
margins declined for the period, standing at 3.7% and 2.6% from 4.6% and 3.0% in FY’12
respectively. Thus, Flour Mills FY’13 EPS came in at N3.24, down 0.5% from the N3.25
EPS recorded for FY’12. The company is proposing a dividend of N2.00 per share, the
payment date is 16th
of September, 2013.
38,88243,524 45,911
70,703
100,975
8%
11%
7% 7%
5%
0%
2%
4%
6%
8%
10%
12%
0
20,000
40,000
60,000
80,000
100,000
120,000
Q1'10 Q1'11 Q1'12 Q1'13 Q1'14
Turnover N'mn PBT N'mn PBT margin %
PBT margin analysis
Sources: CardinalStone Research, Company Financials
3
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Company Overview
Flour Mills of Nigeria is the largest flour miller in Nigeria, with installed capacity of 3.63 million
MT per annum. Over time, the company diversified into other businesses, enabling it to tap into
other markets, and grow efficiency in its core flour milling business. Flour Mills has four major
business segments namely; the food business, the agro allied business, the logistics and support
business, and other subsidiaries. The food business has remained the major contributor to both
topline in recent times followed by the agro-allied business, as the duo contributed 73% and 17%
to FY’13 revenue.
Foods, 73%
Agro-allied, 17%
Packaging, 7% Others, 2%
Foods
Agro-allied
Packaging
Others
Food, 91%
Agro-allied, 7%
Packaging, 10%
Others, -8%
Food
Agro-allied
Packaging
Others
Sources: CardinalStone Research, Company presentation
FY’13 Contribution to turnover by business segment
FY’13 Contribution to before-tax earnings by business segment
Sources: CardinalStone Research, Company presentation
4
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Business Segments The Food Business
The food business comprises of a number of products, and it is divided into two sub-sectors; the
branded consumer goods, and the branded intermediate goods. The branded consumer goods
consist of pasta, noodles, semovita, goldenvita, sugar, rice, edible oils, and snacks. While the
branded intermediate products includes; flour, soft flour, confectionery flour, sugar, and edible
oils. Flour Mills has the following subsidiaries under its food business;
Northern Nigeria Flour Mills Plc (52.6% stake): NNFM is a flour milling company with
capacity of 1,200MT per day. The company produces Golden Penny Flour, Golden Penny
Semovita, Wheat Offlas, and a range of maize products.
Nigerian Eagle Flour Mills Limited (51% stake): Is a flour milling company with a capacity
340,000MT per year.
Golden Pasta (100% stake): The company is involved in the production and sale of
different variants of macaroni and spaghetti.
Golden Noodles Company Limited (100% stake): Golden Noodles produces and sells
noodles to the general public.
Golden Sugar Company Limited (100% stake): Golden Sugar started operations this year,
as the company commissioned its 750,000MT per year factory. The company
commenced sale of industrial sugar in February this year, while it disclosed plans to
begin retail sale in Spetember.
The Agro-allied Business
The agro-allied business covers Fertilizer blending and distribution, domestic cultivation of
sugarcane, soybean, maize, rice and oil palm. The company is also involved in crop processing, oil
seed crushing and refining, as well as animal feed production. Under the agro-allied business, the
company has the following subsidiaries;
65% 68% 73%
15% 12% 0%
10% 13%17%
6% 5% 7%
0%
20%
40%
60%
80%
100%
120%
2011 2012 2013
Others
Port operations
Packaging
Agro-allied
Cement
Food
Contribution to revenue by business segment
Sources: CardinalStone Research, Company Financials
5
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Premier Feed Mills Company Limited (62% stake): Premier Feeds is one of the major
animal feed manufacturers in the country, and manufactures under its trade name
TOPFEEDS. The company has a wide range of products which covers all aspects of
animal feed requirements in the domestic economy. In June 2010 Premier Feeds
completed its 300,000 ton per year animal feed factory, and this brought total
production capacity to 600,000 tons per year.
Kaboji Farms Limited (100% stake) – Kaboji Farms is a farming enterprise with over
3,000 hectares of farmland which cultivates maize, soyabean, rice and cassava. Flour
Mills have disclosed plans to increase the cultivated area further by 2,000 hectares over
the next five years, Flour Mills recently entered into a technical assistance agreement
with Adecoagro, a leading South American agro-industrial company to help manage
and develop Kaboji Farms.
ROM Oils Pty Limited (90% stake) – A recently acquired subsidiary, is a mid-sized edible
oil extraction and refining company.
Thai Farms International Limited (100% stake) – Thai Farms is involved in the processing
of cassava tubers to produce cassava flour.
Golden Fertilizer (100% stake) – Golden Fertilizer is involved in fertilizer blending,
distribution and supply.
The Logistics and Support Business
Under the logistics and support business, Flour Mills provides a wide range of services, namely;
packaging, transportation, logistics, power generation, and port operations. The company has
the following subsidiaries under this business;
Apapa Bulk Terminal Limited (100% stake): Was set up as an SPV to take advantage of
the concession granted by the Nigerian Ports Authority/Bureau of Public Enterprises to
manage and operate Terminals A and B of the Apapa Port Complete. The company
offers services such as, transit warehousing for export cargo, and network cargo
distribution and delivery.
Golden Transport Company Limited (100% stake): Golden Transport is a haulage and
dsitribution company with nationwide reach, which enables efficient product delivery
of Flour Mills goods to customers.;
Other subsidiaries in the Logistics and Support business are, Golden Shipping Company
Limited (100% stake), Flour Mills Registrars Limited (100% stake), and a Real Estate
business in which the company has a 100% stake.
Other Subsidiaries/Associate Companies
The sole constituent in this business is UNICEM, a 2.5 million MT integrated cement plant in
which Flour Mills has a 28% stake, in a joint venture including Lafarge S.A and Holcim Ltd, the
world’s two biggest cement producers. The 2.5 million tonnes plant plant, which was
commissioned early 2009, is currently fourth biggest cement plant in the country. UNICEM
discontinued the importation of cement in Q1’13, given the increased ramp up of its plant and an
increasingly stricter government policy regarding cement importation; thus UNICEM’s
contribution to Flour Mills topline dwindled as the year matured.
6
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Forecasts & Valuation Assumptions DCF Assumptions The Discounted Cash-Flow valuation for FLOURMILL spans a period of five years and our
assumptions are highlighted below;
The major revenue driver for Flour Mills is the recent investments in increasing capacity
in the different business segments. Most significant is the company’s commissioning of a
750,000MT sugar refinery in Lagos. We expect the price of refined sugar to trend
upwards over the forecast years (on the back of data from OECD – FAO Agricultural
Outlook 2013-2022) and this should boost revenue for Flour Mills. We opine that the
company will increase utilization in the coming years, and this has been factored into our
valuation. On the back of this, we expect the revenue from the sugar refinery to double
over the next 5 years.
Also, the increase in flour milling capacity is expected to add to topline as the company
commissioned 3 new flour mills with capacity of about 363,000MT per annum, which
brings the total flour milling capacity of the company to 3.63 million MT per annum.
Assuming similar price level and capacity utilization as FY’13 level, We expect the new
flour milling capacity to account for about 6% of the FY’14 turnover figure.
Given the trend over the last few years, we expect some uptick in the company’s Cost of
sales (as % of sales) in FY’14, as wheat prices remain high. However, over the next five
years wheat prices are expected to soften moderately as countries, especially in Africa
and Asia ramp up production. Though the insecurity in the northern region of the country
has caused prices of agricultural inputs to rise, we expect the recent state of emergency
declaration to aid in curbing the menace. On the back of the above, we expect to see a
slower rise in the cost of sales line in the coming years.
Our WACC assumptions are as detailed in the table below;
WACC Assumptions
After tax cost of debt 8.34%
Tax rate 30.80%
Risk Free Rate 12.73%
Beta 0.43
Equity Risk Premium 5.50%
Stock beta (3Y daily adj.) 0.43
Debt/Equity 1.58x
Weighted Avg Cost of Capital (WACC) 10.95%
LT growth rate 3.00%
Source: CardinalStone Research
7
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Valuation: On the back of the deviation in Flour Mills FY’13 bottom-line performance
from our forecast, we have revised our model accordingly (see Appendix table for
revised forecasts). Hence our equally weighted DCF and P/E valuation, gives a revised TP
of N90.67 for FLOURMILL, which implies an 8% upside potential from current price of
N83.90. We therefore put a HOLD rating on the stock. On our revised numbers,
FLOURMILL is trading at a trailing and forward P/E of 27x and 18x, compared to its
comparable (Middle East and Africa) emerging market peers average of 16x and 17x.
(N'mn)
2014F 2015F 2016F 2017F 2018F
EBIT 31,476 35,553 43,094 49,702 55,691
Tax charge (9,695) (10,950) (13,273) (15,308) (17,153)
NOPAT 21,781 24,603 29,821 34,394 38,538
Less: Capex (42,469) (33,317) (20,230) (31,184) (26,803)
Add: Depreciation 11,747 17,202 19,225 20,784 23,464
+/- Decrease/Increase in OpWC 21,397 (5,223) (4,321) (3,227) (3,429)
Operating FCF 12,456 3,264 24,495 20,767 31,771
Discount factor 0.9013 0.8124 0.7323 0.6600 0.5949
Present Value of OpFCF 11,227 2,652 17,937 13,707 18,901
Terminal Value
Operating FCF 390,480 Discount factor 0.5949 Present Value of OpFCF 232,305
EV 309,455
Less: Net debt (71,904)
Staff gratuities 4,453
Minorities 2,915
Equity Value (Market cap) 244,920
Price/Share (N) 102.66
PE Valuation
PE (3YR. Daily AVG.) 17
FY'14 EPS 4.55
FY'14 TP (N) 78.68
Weighted TP (FY'14) (N) 90.67
Risks: Major risks to our outlook on Flour Mills include volatility in the prices of input
materials, increasing unpredictability of weather patterns as well as insecurity in
Northern Nigeria. Also, the company’s increasing leverage position is a source of
concern, as interest expense continues to depress earnings.
Valuation – Enterprise Value DCF and PE Valuation
8
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Emerging Market Comparables Valuation1
Name Country Mkt Cap $'m EBITDA Mrgn EV/EBITDA T12M Est P/E Curr Yr
Flour Mills of Nigeria Plc Nigeria
1,240
11.5
10.4
18.4
Savola Saudi Arabia
7,266
8.6
14.2
16.3
Dangote Flour Mills plc Nigeria
294
11.3
11.3
42.2
Dangote Sugar Refinery Plc Nigeria
810
14.9
6.7
10.6
Agthia Group Pjsc United Arab Emirates
637
12.6
10.6
15.1
Zad Holding Co Qatar
231
15.5 n/a n/a
Oman Flour Mills Oman
265
15.5 n/a n/a
Salalah Mills Co Oman
172
15.2 n/a n/a
Tongaat Hulett Ltd South Africa
1,267
18.0
7.5
10.7
Lesieur Cristal Morocco
331
7.3
8.5
23.1
Afgri Ltd South Africa
179
9.6
7.3
13.5
Tiger Brands Ltd South Africa
5,639
17.2
15.9
17.4
Cosumar Morocco
952
20.7
7.5
11.5
Enl Land Ltd Mauritius
341
13.9
99.7 n/a
Nestle Nigeria Plc Nigeria
4,591
25.7
25.6
29.4
Delta Sugar Egypt
244
24.0
8.6
5.9
1Peer comparables in the Middle East and Africa
Source: Bloomberg
9
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Financial Statements and Key Ratios (N'Mn) Income Statement (N'Mn) 2011 2012 2013 2014F 2015F 2016F Revenue 238,797 258,268 301,941 424,692 555,288 674,334 Cost of Sales (190,885) (210,442) (256,886) (351,221) (461,445) (561,046) Gross Profit 47,912 47,826 45,055 73,472 93,844 113,288 Sell.Distri. And Admin Expenses (18,086) (21,182) (25,271) (35,249) (46,089) (55,970) EBITDA 29,825 26,644 19,784 38,222 47,755 57,318 Depreciation (7,726) (8,260) (7,045) (11,747) (17,202) (19,225) EBIT/Operating profit 24,923 21,215 23,611 31,476 35,553 43,094 Interest Expense/Income (3,640) (6,299) (11,407) (12,797) (14,354) (15,714) Pre-tax earnings 16,445 12,049 11,165 15,679 18,199 24,380 Taxation (6,995) (3,672) (3,439) (4,829) (5,605) (7,509) Profit after tax 9,450 8,377 7,727 10,850 12,593 16,871
Statement of Financial Position (N'Mn) 2011 2012 2013 2014F 2015F 2016F
Assets Fixed Assets 71,802 103,744 144,346 175,069 191,185 192,190 Inventories 46,634 50,565 64,367 67,357 88,496 107,598 Trade Debtors 8,624 8,173 19,467 13,962 18,256 22,170 Bank and Cash Balances 8,876 26,239 21,837 15,450 1,055 2,785 Other current assets 10,510 22,378 3,296 4,654 6,085 7,390
Total Assets 163,262 232,858 280,247 303,426 332,011 359,065
Liabilities Trade Creditors 7,637 8,668 45,504 64,471 84,704 102,986 Bank overdrafts 9,856 33,643 53,878 55,878 58,878 62,878 Taxation 8,073 4,116 2,747 4,184 5,404 7,129 Amount due to related companies 8 0 46 1 1 1 Dividend payable 267 192 190 72 259 251 Term loans 8,419 28,833 39,863 41,863 44,863 48,863 Retirement Benefit Obligation 3,553 3,822 4,453 4,936 5,683 6,630 Deferred taxation 7,556 9,288 10,927 10,927 10,927 10,927
Total Liabilities 113,266 150,517 196,353 209,753 230,640 245,298
Capital and Reserves Share capital 940 1,167 1,193 1,193 1,193 1,193 Share Premium 5,867 33,526 36,813 36,813 36,813 36,813 Retained Earnings 33,176 32,816 36,135 45,125 51,887 63,051 Other component of equity 5,241 9,691 6,839 6,839 6,839 6,839
Shareholders' funds 45,223 77,200 80,979 89,969 96,732 107,895
Total liabilities and equity 158,490 227,717 277,332 299,722 327,372 353,193
Key Ratios 2011 2012 2013 2014F 2015F 2016F
Profitability Return on Average Equity 18.30% 12.66% 8.70% 11.11% 12.14% 14.65% Return on Average Assets 5.79% 3.60% 2.96% 3.58% 3.79% 4.70% EBITDA Margin 12.49% 10.32% 6.55% 9.00% 8.60% 8.50% EBIT Margin 10.44% 8.21% 7.82% 7.41% 6.40% 6.39% Pretax Profit Margin 6.89% 4.67% 3.70% 3.69% 3.28% 3.62% Net Profit Margin 3.96% 3.24% 2.56% 2.55% 2.27% 2.50%
Valuation Multiples P/E (x) 20.73 23.38 25.90 18.45 15.89 11.86 P/B (x) 2.22 2.18 1.95 1.80 1.61 1.42 Dividend Yield (%) 1.92% 1.91% 2.38% 2.56% 2.37% 3.18% EV/EBITDA (x) 9.69 10.85 14.61 7.56 6.05 5.04
Sources: CardinalStone Research, Company Financials
10
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Financial Statements and Key Ratios ($'Mn) Income Statement ($'Mn) 2011 2012 2013 2014F 2015F 2016F
Revenue 1,568 1,656 1,939 2,647 3,361 3,962
Cost of Sales (1,254) (1,350) (1,649) (2,189) (2,793) (3,297)
Gross Profit 315 307 289 458 568 666
Sell.Distri. And Admin Expenses (119) (136) (162) (220) (279) (329)
EBITDA 196 171 127 238 289 337
Depreciation (51) (53) (45) (73) (104) (113)
EBIT/Operating profit 164 136 152 196 215 253
Interest Expense/Income (24) (40) (73) (80) (87) (92)
Pre-tax earnings 108 77 72 98 110 143
Taxation (46) (24) (22) (30) (34) (44)
Profit after tax 62 54 50 68 76 99
Statement of Financial Position ($'Mn) 2011 2012 2013 2014F 2015F 2016F
Assets Fixed Assets 458 666 927 1,091 1,157 1,129
Inventories 298 325 413 420 536 632
Trade Debtors 55 52 125 87 110 130
Bank and Cash Balances 57 168 140 96 6 16
Other current assets 67 144 21 29 37 43
Total Assets 1,042 1,495 1,799 1,891 2,009 2,110
Liabilities Trade Creditors 49 56 292 402 513 605
Bank overdrafts 63 216 346 348 356 369
Taxation 52 26 18 26 33 42
Amount due to related companies 0 0 0 0 0 0
Dividend payable 2 1 1 0 2 1
Term loans 54 185 256 261 272 287
Retirement Benefit Obligation 23 25 29 31 34 39
Deferred taxation 48 60 70 68 66 64
Total Liabilities 723 966 1,261 1,308 1,396 1,441
Capital and Reserves Share capital 6 7 8 7 7 7
Share Premium 37 215 236 229 223 216
Retained Earnings 212 211 232 281 314 370
Other component of equity 33 62 44 43 41 40
Shareholders' funds 289 496 520 561 585 634
Total liabilities and equity 1,011 1,462 1,781 1,868 1,981 2,075
Key Ratios 2011 2012 2013 2014F 2015F 2016F
Profitability Return on Average Equity 18.30% 12.66% 8.70% 11.11% 12.14% 14.65%
Return on Average Assets 5.79% 3.60% 2.96% 3.58% 3.79% 4.70%
EBITDA Margin 12.49% 10.32% 6.55% 9.00% 8.60% 8.50%
EBIT Margin 10.44% 8.21% 7.82% 7.41% 6.40% 6.39%
Pretax Profit Margin 6.89% 4.67% 3.70% 3.69% 3.28% 3.62%
Net Profit Margin 3.96% 3.24% 2.56% 2.55% 2.27% 2.50%
Valuation Multiples P/E (x) 20.73 23.38 25.90 18.45 15.89 11.86
P/B (x) 2.22 2.18 1.95 1.80 1.61 1.42
Dividend Yield (%) 1.92% 1.91% 2.38% 2.56% 2.37% 3.18%
EV/EBITDA (x) 9.69 10.85 14.61 7.56 6.05 5.04
Sources: CardinalStone Research, Company Financials
11
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
Disclosure
Analyst Certification
The research analyst(s) denoted by an “*” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analysts denoted by an “*” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst(s) cover in this research) that: (1) all of the views expressed in this report
accurately articulate the research analyst(s) independent views/opinions, based on public information regarding the companies,
securities, industries or markets discussed in this report. (2) The research analyst(s) compensation or remuneration is in no way
connected (either directly or indirectly) to the specific recommendations, estimates or opinions expressed in this report.
Analysts’ Compensation: The research analyst(s) responsible for the preparation of this report receive compensation based upon
various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which
include revenues from, among other business units, Investment Banking and Asset Management.
Investment Ratings
CardinalStone employs a 3-step rating system for equities under coverage: Buy, Hold, and Sell.
Buy ≥ +15.00% expected share price performance
Hold +5.00% to +14.99% expected share price performance
Sell < +5.00% expected share price performance
A BUY rating is given to equities with strong fundamentals, which have the potential to rise by at least +20.00% between the current
price and the analyst’s target price.
An HOLD rating is given to equities with good fundamentals, which have upside potential within a range of +5.00% and +14.99%,
A SELL rating is given to equities that are highly overvalued or with weak fundamentals, where potential returns of less than -5.00% is
expected, between the current price and analyst’s target price.
Cardinal Stone Research distribution of ratings/Investment banking relationships as of August 26, 2013
Rating Buy Sell Hold
% of total recommendations 29% 53% 18%
% with investment banking relationships 0% 0% 0%
Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks
on any security recommended herein. You can contact the analyst named on the front of this note for further details.
Frequency of Next Update: An update of our view on the company would be provided when next there are substantial
developments/financial news on the company.
Conflict of Interest: It is the policy of CardinalStone Partners Limited and its subsidiaries and affiliates (individually and collectively referred to as “CardinalStone”) that research analysts may not be involved in activities that suggest that they are representing the interests of Cardinal Stone in a way likely to appear to be inconsistent with providing independent investment research. In addition, research analysts’ reporting lines are structured so as to avoid any conflict of interests. For example, research analysts are not subject to the supervision or control of anyone in CardinalStone’s Investment Banking or Sales and Trading departments.
12
Equity Research
Initiation of Coverage
Flour Mills of Nigeria Plc
However, such sales and trading departments may trade, as principal, on the basis of the research analyst’s published research. Therefore, the proprietary interests of those Sales and Trading departments may conflict with your interests.
Company Disclosure: CardinalStone may have financial or beneficial interest in securities or related investments discussed in this report, which could,
unintentionally, affect the objectivity of this report. Material interests which CardinalStone has with companies or in securities
discussed in this report are disclosed hereunder:
Company Disclosure
FLOUR MILLS OF NIGERIA PLC
a. The analyst holds personal positions (directly or indirectly) in a class of the common equity securities of the company b. The analyst responsible for this report as indicated on the front page is a board member, officer or director of the Company c. CardinalStone is a market maker in the publicly traded equities of the Company d. CardinalStone has been lead arranger or co-lead arranger over the past 12 months of any publicly disclosed offer of securities of
the Company e. CardinalStone beneficially own 1% or more of the equity securities of the Company f. CardinalStone holds a major interest in the debt of the Company g. CardinalStone has received compensation for investment banking activities from the Company within the last 12 months h. CardinalStone intends to seek, or anticipates to receive compensation for investment banking services from the Company in the
next 3 months i. The content of this research report has been communicated with the Company, following which this research report has been
materially amended before its distribution j. The Company is a client of CardinalStone k. The Company owns more than 5% of the issued share capital of CardinalStone l. CardinalStone has other financial or other material interest in the Company
Important Regional Disclosures
The analyst(s) involved in the preparation of this report may not have visited the material operations of the subject Company (ies)
within the past 12 months. Commission is the commission rate or the amount agreed with a customer when setting up an account or at
any time after that. To the extent this is a report authored in whole or in part by a Non-U.S. analyst and is made available in the U.S.,
the following are important disclosures regarding any Non-U.S. analyst contributors:
The Non-U.S. research analysts (denoted by an * in the report) are not registered/qualified as research analysts with FINRA; and
therefore, may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company,
public appearances and trading securities held by a research analyst account. Each analyst (denoted by an *) is a Non-U.S. Analyst and
is currently employed by Cardinal Stone.
Legal Entities
Legal entity disclosures: CardinalStone Partners is a member of The Nigerian Stock Exchange (NSE) and is authorized and regulated by
the Securities and Exchange Commission (SEC) to conduct investment business in Nigeria.
top related