Rating: Hold
Current Market Price: N3.87

Latest Dividend: N0.15
Year High: N4.30
Year Low: N3.87
Fair Value: N3.17
Equity Analyst:  Tunde Segun Jeariogbe

Introduction/Key Financials

• This report observes the first quarter financial numbers recently released by the management of Northern Nigerian Flour Mills for the period ended 30^th June, 2020. The same is compared side-by-side with numbers released at the end of the corresponding quarter in 2019.
• Of all Ratios observed in this analysis, it was observed that Northern Nigerian Flour Mills recorded lower Efficiency, signifying an underutilisation the available funds, hence the need to urge management to either effectively put same to use or, appropriately reduce interest yielding liabilities.
• Meanwhile, our valuation analysis explored ratios generated from the full-year financials. There is need to understand that although the company’s latest full-year numbers showed that the company swam out of murky waters, emerging from its loss position, even as models still valued each unit of the company low because growth cannot be readily established. Thus, the sustainable growth rate for the 15 kobo divided proposed by the directors was assumed as growth rate.
• Appreciably, it was observed that the improved position was effectively sustained through the first quarter ended 30^th June, 2020.
• Therefore, in our opinion, and for proper evaluation, the management of Northern Nigerian Flour Mills should strive to maintain the positive performance through the on-going reporting period, a situation that will expectedly rub-off on its overall valuation, going forward.
• As at the time this report was compiled, the share price of NNFM had not been adjusted for the most recently proposed 15 kobo cash dividend per share. According to the numbers released by the company, the qualification date for the said dividend is 24^th August, 2020, while payment date is 10^th September, 2020.
• See below for other financials/ratios

N NIG. FLOUR MILLS
Bourse	Nigerian Stock Exchange
Code Name	NNFM
Sector	CONSUMER GOODS
Market Classification	MAIN BOARD
Nature of Business	Flour Milling
Date of Incorporation	October 29th 1971
Date Listed
End of Accounting Year	31ST MARCH
Website	fmnplc.com
Registrar	FLOUR MILLS REGISTRARS
Auditor	KPMG Professional Services
Share Price@Relsd (N)	3.87
Earnings per Share	0.38
Intrinsic Value(N)	3.17
Share Outstanding	178,200,000
Market Capitalisation	689,634,000

Company figures

• Turnover for the first three months is N1.90 billion, or 68.97% above the N1.12 billion reported in the corresponding quarter of 2019.
• Cost of sales remained high for the two periods compared, with total direct cost of running the business for the current quarter at N1.72 billion, versus N962.98 million in the corresponding quarter.
• Operating Profit is estimated at N118.26 million up from the previously estimated N113.49 million in the similar quarter of 2020.
• Operating Expenses equally grew by 25.58% to N101.17 million, as against N80.56 million in the corresponding quarter of 2019.
• A total of N55.20 million was used as finance cost through the quarter; lower than the N96.99 million in the comparable quarter by 43.09%.
• Profit before Tax soared by 304.04% to N68.50 million, as against N16.95 million in the corresponding quarter in 2019.
• Reporting a Nil tax expense for the period, NNFM posted N68.50 million as profit for the quarter versus N10.75 million in the comparable quarter.

N NIG. FLOUR MILLS
Statement of Comprehensive Income
	2020	2019	%CHG
Turnover	1,905,414,000	1,127,678,000	68.97
Cost of Sales	1,727,842,000	962,981,000	79.43
Operating Profit	118,264,000	113,496,000	4.20
OPEX	101,174,000	80,566,000	25.58
DEPRECIATION	51,759,000	46,977,000	10.18
AMORTISATION	–	–	#DIV/0!
FINANCE COST	55,201,000	96,999,000	-43.09
NET FINANCE INCOME	(49,736,000)	(96,542,000)	-48.48
PBT	68,501,000	16,954,000	304.04
TAX	–	6,199,000	-100.00
PAT	68,501,000	10,755,000	536.92
TOTAL COMP INCOME	68,501,000	10,755,000	536.92
Statement of Financial Position
Current Assets	5,049,637,000	2,910,327,000	73.51
Non Current Assets	3,683,632,000	2,159,562,000	70.57
Total Assets	8,733,269,000	5,069,889,000	72.26
Current Liabilities	4,991,934,000	888,444,000	461.87
Non Current Liabilities	953,839,000	3,019,978,000	-68.42
Total Liabilities	5,945,773,000	3,908,422,000	52.13
Net Assets	2,837,496,000	1,161,467,000	144.30
Retained Earnings	1,092,870,000	982,846,000	11.19
Shares Outstanding	178,200,000	178,200,000

• Current Assets of Northern Nigerian Flour Mills was currently estimated at N5.04 billion at the end of the quarter, against N2.91 billion in the corresponding quarter
• Non-Current Assets stood at N3.68 billion as against N2.15 billion in the similar quarter
• Thus, Total Assets improved by 72.26% between the two periods compared as it now valued at N8.73 billion versus N5.06 billion
• Current Liabilities is currently estimated at NN4.99 billion, this is same as 461.87% higher than the N888.44 million in the corresponding quarter
• Non-Current Liabilities stood at N953.83 million same as 68.42% below the comparable quarter’s number
• Thus Total Liabilities is valued at N5.94 billion versus N3.90 billion in the corresponding quarter
• Netting Assets & Liabilities, the company achieved a Net Assets of N2.83 billion as against N1.16 billion in the similar quarter of 2019
• Retained Earnings grew by 11.19% to stand at N1.09 billion versus N982.46 million in the corresponding quarter

Financial Strength/Solvency Ratios

• NNFM’s Debt Ratio is currently estimated at 68.08%, which is: Total Liabilities at the end of the period is 68.08% of the Total Assets, which is a reduced position when compared to 77.09% achieved in the comparable quarter.
• Total Debt is same as 209.54% of the Equity at the end of the period, implying that more debt was used to service assets through the period. It is important to understand that this is a lower debt compared to what was used in the comparable period.
• Equity Ratio stood at 32.49%, as against 22.91% in the comparable period. In other words, Net Assets is same as 32.49% of the company’s Total Assets Value.
• Judging by the 0.50x beta value estimated on the share price trend of Northern Nigerian Flour Mills as of the time this analysis was done, one can conclude that the share price of the stock is less liquid when compared to both industry peers and market beta.

Financial Strength/Solvency Ratio
TICKERS	2020	2019	%CHG
Debt Ratio	68.08%	77.09%	-11.69
Total Debt to Equity Ratio (MRQ)	209.54%	336.51%	-37.73
Equity Ratio	32.49%	22.91%	41.82
TICKERS	2020	Industrial Average	%CHG
Beta Value	0.50	0.97	-48.45

Profitability Ratios

• EBITDA Margin is estimated at 6.21%, as against 10.06% in the corresponding quarter, this is a lower profitability when compared to the previous first quarter ratio.
• Pre-Tax Margin stood above that of the comparable quarter by 139.12% at 3.60%, as against 1.50% in the corresponding quarter. Understand that the improvement observed in the Pre-Tax margin was due to the zero tax position reported.
• Cost of Sales remained outstandingly high at 90.68% of Turnover for the period, which is 6.19% above the 85.40% estimated in the corresponding quarter.
• Although the Return made on Equity soared by 160.71%, we are of the opinion that it is on the lower side, despite the high debt used through the period
• See the table below for other profitability ratios:

PROFITABILITY RATIOS
TICKERS	2020	2019	%CHG
EBITDA MARGIN	6.21%	10.06%	-38.33
PRE-TAX MARGIN	3.60%	1.50%	139.12
EFFECTIVE TAX RATE	0.00%	57.64%	-100.00
CS TO TO	90.68%	85.40%	6.19
ROE	2.41%	0.93%	160.71
ROA	0.78%	0.21%	269.75

Efficiency Ratios

• To measure management’s efficiency, we have tested few ratios as shown below:
• The estimated Operating Expenses was estimated at 5.31% of the Turnover Value, which is lower when compared to the 7.14% achieved at the end of the corresponding period of last year.
• Turnover stood at 21.82% of the Total Assets Value, which is equally a lower efficiency measurement when compared with 22.24% in the comparable period.
• Going by the estimated Working Capital Turnover of 33.02x, we can safely conclude that the company is currently running smoothly and will not have need for additional funding. Conversely, it further established the effect of lower efficiency, confirming the fact that more cash is always available and not fully utilized. Should the management be satisfied with it current business coverage, it is recommended that the interest yielding liabilities be reduced appropriately.
• Based on generally accepted standards, the company’s Working Capital Ratio is fair at 1.01x, this is a better ratio compared to the 3.28x estimated in the comparable year.

EFFICIENCY RATIOS
	2020	2019	%Chg
OPEX toTO	5.31%	7.14%	-25.68
TO to TA	21.82%	22.24%	-1.91
Working Capital Turnover	33.02	0.56	5,820.55
Working Capital Ratio	1.01	3.28	-69.12

Investment/Valuation Ratios

• Within the two period’s compared, the share price of NNFM on the Nigerian Stock Exchange (NSE) was re-valued by 46.25% and now stands at N3.87, against N7.20 in the corresponding period (note that price used were as at the date the result was made available to the investing public).
• In line with the improved profit level, the amount earned per unit jumped to N0.38, compared to N0.06 in the comparable quarter.
• Our adjusted first quarter P-Earnings Ratio looks normal at 10.07x, compared to the estimated 119.30x in the corresponding quarter.
• The said earnings per share is a yield of 9.93% over the current market price of the milling firm on the day the result was released, which is far above the 0.84% yield in the corresponding quarter.
• Due to the observed improvement in Net Assets Value, although shares outstanding remained constant, Estimated Book Value improved to N15.92 per share, from N6.52 in the corresponding quarter.
• Revealing an under-priced position of each unit of Northern Nigerian Flour Mills on the exchange is the estimated Price to Book Value that stood far below unity. See below for detailed investment ratios

Investment/Valuation Ratios
Tickers	2020	2019	%Chg
Price at Released	3.87	7.20	-46.25
EPS	0.38	0.06	536.92
TCIP/SHARE	0.38	0.06	536.92
P/E-Ratio	10.07	119.30	-91.56
Earnings Yield	9.93%	0.84%	1,084.97
BV/Share	15.92	6.52	144.30
PBV	0.24	1.10	-78.00

Valuation

After considering the improved status of the company, and the improved first-quarter positions, the share price has been carefully valued. Understand that we do not anticipate a rapid growth rate in the share price, judging by the few lower ratios identified from its released numbers. Thus, we have valued each unit of Northern Nigerian Flour Mills at N3.17, open for revaluation from quarter to quarter. Thus, comparing this with the current market price, we have rated it a Hold.