Flour Mills of Nigeria Plc (FMN), one of the country’s leading foods and agro-allied companies, is offering to buy out its minority shareholders through its majority shareholder, Excelsior Shipping Company Limited.
The proposed buyout, priced at N70 per share, could lead to FMN’s delisting from the Nigerian Exchange (NGX).
As shareholders prepare to vote at a court-ordered meeting on November 14, 2024, it is essential to assess whether this offer is fair and what the implications are, especially for the minority shareholders.
Share Price Movement: A Closer Look
FMN’s share price has shown strong growth over the past year. In 2023, the stock rose by 16% year-to-date (YtD). The rally extended into 2024, with a gain of 18% in Q1 and 35% by the end of the first half.
Following the announcement of the buyout on September 24, 2024, the share price was up 10% in a single trading day, closing at N60.50. This brought the stock’s YtD gain to an impressive 83%.
Given this momentum, the N70 per share offer represents a 15.7% premium over the most recent closing price and could potentially rise further before the register closes on September 27, 2024.
However, is this premium sufficient compensation for minority shareholders, particularly in light of the company’s financial outlook?
The Return to Profitability
FMN’s return to profitability in Q1 2025 after a challenging 2024 is a significant development.
The company reported a pre-tax profit of N7.36 billion for the quarter, compared to a loss of N237 million for the entire 2024 financial year. The turnaround was driven by improved operational efficiencies, cost control measures, and revenue growth.
With FMN back on track, minority shareholders may wonder if the N70 per share offer adequately reflects the company’s potential, particularly given its renewed profitability.
Valuation Metrics: Understanding the N70 Offer
To assess whether the N70 per share offer is fair for minority shareholders, it’s crucial to examine key financial metrics.
These metrics help provide a clearer picture of FMN’s current market value, growth prospects, and whether the offer aligns with the company’s financial health and future potential.
Projected Earnings per share (EPS) Growth:
FMN’s trailing twelve-month (TTM) EPS currently stands at N4.49, but analysts project a significant increase to N12 by the end of the 2025 financial year.
As EPS grows, a company’s stock value typically increases. If FMN achieves its projected N12 EPS, this could translate to much higher profits, likely pushing the stock price higher than N70 in the future.
This raises a concern for minority shareholders: Does the N70 offer adequately capture the company’s future earning potential? Does holding onto shares offer higher financial gains than accepting the buyout?
Price to earnings (P/E) Valuation
FMN’s current P/E ratio is 13.46x, meaning investors are paying 13.46 times the company’s earnings per share. This is slightly above the industry average of 11.8x, reflecting investor confidence in FMN’s future potential.
Given the projected earnings growth to an EPS of N12 by FY2025, the P/E ratio at the N70 offer price would drop to 5.83x, which could make the stock appear undervalued.
This suggests that the N70 offer may not fully capture the company’s growth potential, which could see minority shareholders missing out on future gains.
Dividend Yield
FMN’s dividend yield currently stands at 4.02%, based on the N1.80 dividend paid for FY2024.
With analysts projecting an 8.45% net dividend growth over the next five years, the buyout offer might appear as a loss of a reliable income stream.
Is the N70 Offer a Good Deal?
While Excelsior Shipping’s N70 per share offer represents a premium over the current market price, it appears to undervalue FMN when considering the company’s future earnings potential, dividend yield, and valuation metrics.
The N70 buyout offer is attractive in the short term, providing immediate liquidity and a quick exit. However, FMN’s projected earnings growth to N12 by FY2025, its relatively low Price-to-Sales (P/S) ratio of 0.10, and its slight premium over book value raise concerns about whether the offer fully reflects the company’s true value.
Minority shareholders may want to push for an increased offer that better accounts for FMN’s future growth prospects.
A higher offer would provide a more balanced valuation and ensure that shareholders are adequately compensated for the company’s potential earnings and long-term growth.
