Analysts say security challenges threat to NNFM’s growth potentials

Analysts say the security challenges in the northern part of the country are crimping the growth prospects of Northern Nigeria Flour Mills (NNFM), a company that operates in the fast moving consumable goods (FCMG) sector.

“Insecurity in the North is a big issue,” said Saheed Bashir, an analyst at Meristem Securities Limited, in a response to questions.

“All the consumer goods companies like Unilever, UACN and PZ Cusson are leaving the North as a result of the Insurgency. Market in the North is almost lost,” said Bashir.

NNFM recently posted a 17.73 percent decrease in revenue to N5.75bn from N7bn in the same period of the corresponding year (Q3) 2014.

Despite a 20 percent reduction in cost of sales to N5.44bn, cost of sales margin reduced to 94.60 percent from 97 percent the preceding though analysts say the cost margin figure is high.

While production cost to revenue caused lower selling price, gross margin moved to 5.29 percent in 2014 from 2.79 percent.

Net margin jumped to 3.1 percent in Q3 2014 as against Q3 2013 a figure analysts say is on the low side.

“The company is unable to push its products to countries like Chad,” said Abiola Rasaq of the Research and Strategy Unit of Associated Discount House Limited.

Based on BusinessDay analysis, fixed asset turnover which measure the ability of a firm to translate sales to profit and to dividends, reduced to 130 times compared with 214 times the preceding year.

“Production is distorted and the assets utilisation is slowed affecting the fixed assets turnover,” said Bashir.

However, there were improvements to the bottom line level as profit before tax PAT increased by 45.45 percent to N180.91m in Q3 2014 as against N124.12m in Q3 2013.

Analysts say that the restoration of peace in the crisis ridden region will accelerate the growth of NNFM and also enable it tap into Nigeria’s young and rapidly growing  population  that crave for consumption.

A recent report by McKinsey Global Institute (MGI)   projects,  consumption in Nigeria  could more than triple, rising from $388bn a year today to $1.4trn a year in 2030, an annual increase of about 8 percent.

NNFM share price closed at N19 on the floor of the NSE while market capitalisation stood at N3.38bn.

BALA AUGIE

Source : BusinessDay

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