Dangote Flour: Investors Await Bumper 2017 Harvest

Having year-to-date (YTD) growth as at December 8, 2017, showing that Dangote Flour Mills has been flight footed on the Nigerian Stock Exchange (NSE), outperforming the Nigerian Stock Exchange All Share Index, the rise in the company’s share is as a result of impressive performance seen so far in the year. The company’s share which opened the year at N4.25, gained N168.24 per cent to close trading on December 8, 2017 at N11.40 per share.
It would be recalled that the Dangote Flour Mills share emerged the best performing stock in 2016 with a gain of 276.11 per cent.
Fast Moving Consumer Goods (FMCG) story is changing positively, and quite rapidly, in the context of the magnitude of challenges operators faced in the last two years and ongoing anemic economic recovery. Though capital market analysts had pointed out at the beginning of the year that earnings outlook will be better compared to previous year.
The Consumer Goods Company’s performance has been impressive as a result of improved access to the dollar, recovering consumer confidence, easing energy challenges, balance sheet deleveraging, and cost-reflective pricing. This can also be linked to the growth in the manufacturing sector GDP, where food and beverage is 44 per cent in the third quarter of this year, coming after four quarters of negative growth. In line with the broad economic growth outlook, and baring major external shocks, especially as relates Nigeria’s ability to earn foreign exchange, this is led to positive performance in the sector.
Meanwhile, Dangote Flour diversified into other products including Spaghetti, Macaroni, Noodles and Pasta, which helped boost revenue nearly 16 per cent to N100.3 billion in the nine months ending September 30, 2017. This compares favourably to the N86.58 billion achieved in the equivalent period in 2016. Manufacturers were forced to diversify their revenue base during the five-quarter recession that hit the economy.
The company also grew pre-tax profits by nearly a quarter to N 18 billion from N14.54 billion leading to improved pre-tax margin of 18 per cent compared to 17 per cent achieved earlier. Net profit improved more than a quarter in the period to N12.75 billion from N9.96 billion also pushing up profit margin to 12.7 percent from 11.5 per cent. The company’s growth trajectory was already evident in the first quarter as revenues and profits grew relative to the equivalent period in 2016. Revenues vaulted 172.17 per cent to N29.1 billion from N10.67 billion.
Analysts pinned the turnaround to reopening the company’s Kano Mills, which led to increased sale, especially in the northern region. This did not stop inventory buildup by a quarter to N11.89 billion from N9.61 billion. Rising inventory and mounting receivables would have hurt the liquidity position of the company if not that its cash balance was dramatically shored up the period.
Following the good run in operating profit, pre-tax and net profits naturally took a leap. While Pre-tax profits were up to N3.9 billion from a negative of N975 million, net profit hit N2.6 billion from a losses of N900 million.
At the time, analysts forecast a much better performance from the company since the sale of its noodles business to Dufil Prima foods was expected to lead to more efficiency. Of the divestment, group managing director, Dangote Flour Mills, Thabo Mabo said it was part of strategies of focusing on core areas of flour and pasta production where the company has substantial market share.
He said that with the divestment, Dangote Flour will now focus on its strengths in flour and pasta and become more profitable by improving in areas of quality, distribution and marketing.
The executive director, Sales and Marketing, Halima Dangote attributed success recorded by Dangote Flour Mills  to change in leadership and product innovation. She highlighted strategic and bold moves by the company to grow its market equity in Africa by re-launching a new and improved pasta product, ‘Ecccellente’ with a great taste and in new pack.
She said, “the new improved and affordable pasta, is expected to reduce the dependency on rice consumption by Nigerians.” Also, chairman, Dangote Flour Mills, Mr. Asue Ighodalo,  said the latest earnings report underscored that  DFM is stronger, better sophisticated and more focused.
According to him, since the takeover, the new board and management have taken several steps to reposition the company through expansion to drive growth while continuously focused on increasing shareholders value and offerings to customers. He reiterated the commitments of the group to further invest in the growth of its businesses within and outside Nigeria noting that the Dangote Group believes in job and wealth creation.
Year-on-year Dangote Flour Mills Plc grew revenues 120.22 per cent from N48.03 billion to N105.77 billion while net income improved from a loss of N12.53 billion to a gain of N10.61 billion. In 2016, Dangote Flour Mills increased its cash reserves by 952.04 per cent, or N12.97 billion. Cash Flow from financing totalled N11.18 billion or 10.57 percent of revenues. In addition the company generated N5.80 billion in cash from operations while cash used for investing totalled N4.02 billion.
Analyzing the sector, the chief operating officer of DataInvest Limited added that “the key success factor for players in the industry is the ability to gain market share and this can be achieved by increased capacity and aggressive marketing of products in addition to good distribution network, which Dangote Flour has.” He added that “we expect medium to long term profitability to be based on brand quality, economies of scale, strategic integration, increased capacity and expansion drive going forward.”