Company Analysis

Honeywell Flour 2021Q1: High Margin, As Profit Growth Supports Hope Of Future Dividends

Last week, Honeywell Flour Plc, manufacturing and marketer of wheat-based products like flour, semolina, whole wheat meal, noodles, and pasta, released its unaudited financials for the three-month ended June 30, 2021, ahead of the statutory deadline. The report, which was released on the same date as that of 2020, showed consistency in quarter-on-quarter and yearly earnings growth over a three-year period according to Investdata Research records.

A review of the report shows that the company also sustained the culture of creating value that as shown in its earnings growth that surpasses market and industry average, despite the country’s prevailing macroeconomic headwinds. The company’s product mix and lines continue to support its balance sheet and performance in recent years. Among others, the 2021Q1 result points to the possibility of a high dividend payout at the end of the current financial year, as shown by the mixed 5-year Earnings Per Share Table.

The management’s desire to create value for stakeholders is shown in the company’s earnings power, investment ratios, and dividend yields above the sectorial average yield.

The turnover of N33.06 billion for the period under review translated to N0.019 Earnings Per Share (EPS), compared to the N0.006 reported in the similar period of 2020, driven by cost management and repositioning of its multiple product lines targeted at the different classes of consumers across the country. The top-line for the period equally reflected an increase in market share and penetration into new markets following the successful repackaging of its products recently. 

However, traders and investors have not reacted to the numbers so far, following which Honeywell’s share price continues to oscillate below the N1.80 per share price as of the released date.

Sales revenue rose by 25.23% from N26.4 billion to N33.06 billion, while net profit improved by a significant 233% to N150 million, from just N45 million in the corresponding period of last year. The rally in market value reflected on the earnings yield, which increased to 1.13% at the released date, from 0.44% in 2020.

Cost of sales grew by 32.29%, thereby significantly eating into the bottom line, despite which profit margin stood at 0.45%, a decline from 1.78% in the 2020 corresponding period. Net Assets inched up by 1.37% to N58.12 billion from N57.33 billion, to lead the industry in profit growth.

Adjusted Price to Earnings ratio for the period was 88.82x, better than the 225.57x recorded in the similar quarter of last year, reflecting in the 60% improvement in earnings power over the period. Book Value for the period stood at N7.33 per share, while Return On Equity rose sharply to 0.26%, from 0.08% in 2020.

Honeywell flour continues to enhance its capacity to drive investment and profit ratios, as shown in the Earnings Per Share (EPS) for the first three months of the new financial year, a yield of 1.13% as of the released date. Retained earnings improved to N15.58 billion, from N13.99 billion in 2020, a pointer to the high possibility of an increased dividend payout at the end of this financial year.

The operating expenses to turnover Ratio is currently estimated at 6.23%; lower than the previous year 9.50%. The company accelerating earnings growth over the year is 109.5% exceeds its 5-year average of -0.4% per year. The company has also remained profitable in the last five years, with earnings trending up by -0.4% yearly. The high Price to Earnings Ratio and low Price to Book reveals the inherent value ahead of the company’s future price and prospect. Also, the N7.33 Book Value shows a high margin of safety that remains a source of encouragement and an attraction among discerning investors and traders.


The company’s current share price is considered very attractive at 0.23x earnings, as its 2021 full-year result upgraded guidance is indicative of the stronger performance from the management, especially as the numbers remain impressive.

Meanwhile, at N7.33 each, Honeywell’s Book Value reveals its undervalued status, following which it can be considered fairly priced at N12 per share, which is more than a 600% discount to the current market value.

Analysts Opinion/Recommendations

Also, we expect earnings to remain stable as economic recovery becomes stronger to drive and support profit, going forward. 

It is noteworthy that Honeywell Flour’s short-term assets of N63.93 billion do not adequately cover its short-term liability of N80.2 billion, but covers the long-term liability of N25.9 billion, considering the current assets of N63.93 billion which indicates the financially stable nature of the company.

All things considered, we believe traders and investors with whatever investment goals, who desire growth, should look the way of this stock, even as its Q1 performance confirms our earlier upgraded guidance, after studying its audited full-year results for the last financial year.

Investment in Honeywell shares for the next 90 days will beat any form of returns from other investment windows like Treasury Bills, bonds, and fixed deposits. This is given our expectation of better earnings yield at the end of Q2 and the year. We have therefore rated Honeywell Flour a BUY.

Technical View

Honeywell’s price action has remained in a bullish channel since October 2020, after rebounding from a low of N0.92 on positive sentiments, improved liquidity, and impressive financials that have formed a saucer chart pattern that supports an uptrend on a monthly time frame. The pullback has stayed within the up-channel as profit-taking hit the stock in the midst of the expected reaction to the Q1 earnings news. RSI is reading 59.07 and the money flow index is looking up at 83.41 points, a sign that funds are still entering the stock. It is worthy of note that the consumer goods stock is trading below its shortest Moving Average of 14 and 20-day, but above the 50-MA to reveal a strong uptrend.

Five-Year Performance (2017-2021)

A critical look at the company’s performance over the past five years shows a consistent improvement in the topline but the mixed trend on its profit level. In 2018, Honeywell Flour recorded a slowdown in investment and profitability ratios. The high and low performance is revealed by the numbers in the tables below. Sale revenue for the period oscillated to reflect changes in the economy, moving from N52.23 billion in 2017 to a peak of N109.60 billion after falling in 2019 to N71. 41 billion, before rebounding in 2020 toN80.45 billion.

Profit level has been on an oscillating trend within the five-year period, translating to a negative 0.4% growth at N1.13 billion, from N4.5 billion in 2017. Earnings Per Share has continued to improve over the last three years at N0.14 each, despite the challenging operating environment, marked by the high cost of sales and production, besides the high rate of inflation, dwindling discretionary income, and falling Naira value.

Honeywell’s earnings history has been up and down over the period, rising from 54 kobo in 2017 to 56 kobo in 2018, following which it fell to one kobo in 2019, after which it rebounded in 2020 to eight kobo before posting 14 kobo in 2021. The company’s stable Earnings Yield movement in the last three years is a plus, notwithstanding the decline from 30.34% in2017 to 24.38% in 2018, after which it has maintained an uptrend ever since to 8.20% in 2020 and 12.03% in 2021. 

The management efforts are paying off as shown in the rebound in profit margin that supports a steady growth in profit, dividend payout, and impact on the economy. Also, Honeywell has demonstrated some measure of doggedness in the face of the unfriendly economic realities and other factors that had militated against its bottom-line.

Investors, on the other hand, have followed the improved performances of the company over the years, by taking strategic positions, especially given the inherent value, while creating wealth as investors smile to the faces of shareholders. there is also the possibility of capital appreciation as the share price appreciates on the exchange. There is also the expected seven kobo dividend. Similarly, over the years, Book Value has grown in the same direction, from N6.60 per share in 2017, to N7.11 in 2018, N7.15 in 2019, N7.21 in 2021, and N7.31 in 2021 on growing earnings.  This has also translated to improved Investor confidence expected to support the price, especially as valuation tools place the company’s stock at N12 per share.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467

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