Honeywell Flour Mills: Investors Place on Dividend Holiday amidst Earnings Recovery
The full-year audited financial results of Honeywell Flour Mills Plc (HFMP) for the year ended March 31, 2025, have sparked considerable debate in the capital market, raising a blend of optimism and skepticism among shareholders and market analysts alike.
The company’s ability to sustain its recent share price appreciation is under close scrutiny—especially as the Board of Directors has announced that no dividend will be declared, despite a marked recovery in profitability.
The audited consolidated and separate financial statements tell a story of revenue expansion, operational strain, and a delicate balance of profitability. Investors are now questioning whether the Honeywell is able to continue to maintain its upward trajectory, or if current valuations are overstretched.
For the year under review, Honeywell posted record-breaking revenue of N372.51 billion, a substantial increase of 98% from the N188.31 billion recorded in the previous financial year.
This leap reflects significant operational scale-up and possibly improved market penetration. The performance is particularly notable amid Nigeria’s inflationary pressures and macroeconomic volatility, highlighting the company’s aggressive top-line expansion.
However, the remarkable revenue increase was closely trailed by a sharp surge in cost of sales, which rose from N155.97 billion to N354.26 billion, a 127% jump.
This spike nearly wiped out the benefits of revenue growth, as gross profit slightly declined from N32.34 billion to N32.25 billion, indicating that input costs—likely due to foreign exchange volatility and rising raw material prices—continue to weigh heavily on margins.
In the operational spectrum, there was some silver lining in other income, which more than doubled to N4.92 billion from N2.28 billion—a figure that provided temporary relief to the declining profitability metrics.
But this boost was eroded by spiraling operational expenses. Selling and distribution expenses ballooned by nearly 80% from N2.55 billion to N4.58 billion.
Administrative expenses showed even more concerning growth, more than tripling from N3.51 billion to N12.09 billion. Impairment losses on trade receivables surged to N2.22 billion, up from just N165.5 million, raising red flags about credit quality and receivable recovery.
As a result, operating profit declined sharply from N28.40 billion in 2024 to N18.29 billion in 2025—an unsettling drop of nearly 36%.
Despite the pressure on operations, Honeywell’s bottom line showed notable resilience, supported by unexpected improvements in finance income, which stood at N8.54 billion, compared to zero in the previous year. This windfall likely came from strategic financial restructuring and interest gains on investments.
Nevertheless, finance costs surged dramatically to N36.26 billion, up from N5.43 billion, likely due to increased borrowing costs in line with foreign-denominated debt obligations—a concerning development that significantly offset revenue gains.
Even with these headwinds, the company reported an improved profit before tax of N21.39 billion, compared to N8.50 billion last year. Net profit swung from a previous loss of N10.12 billion to a gain of N14.78 billion, marking a commendable turnaround in profitability.
The financial position of Honeywell Flour Mills saw a substantial shift: Trade and other receivables rose steeply to N27.75 billion (from N2.40 billion), which might signal both expanded operations and increased credit risk.
Trade and other payables increased from N71.55 billion to N79.01 billion, suggesting tighter cash flow management and extended payment cycles.
Borrowings climbed to N6.68 billion, up from N4.69 billion, reflecting a higher debt profile that must be carefully managed amid rising interest rates.
Retained earnings moved into positive territory at N7.82 billion, reversing prior accumulated losses of N6.96 billion, a significant boost to shareholder equity. Consequently, shareholders’ funds more than doubled to N47.45 billion, from N22.86 billion.
Earnings per share (EPS) reported a dramatic shift into positive territory, standing at 186.40 kobo, compared to a loss of 127.61 kobo per share in the prior year. This sharp reversal has improved sentiment around the company’s recovery prospects, although analysts remain cautious given the operational inefficiencies and cost structures.
Despite the improved earnings, the lack of dividend declaration has disappointed many retail investors, especially in a year of recovery. This decision may be strategic—suggesting reinvestment intentions and liquidity constraints—but it also fuels a narrative of cautious optimism.
Valuation Outlook: Hold or Sell?
At a current market price of N21.00 per share, Honeywell trades at a significant discount to its peer, Northern Nigeria Flour Mills (NNFM), which is priced at N138.90 per share. However, the price differential is partly justified by NNFM’s stronger fundamentals and dividend consistency.
With the current valuation and financial performance, analyst recommendations tilt toward a “HOLD” position, particularly for long-term investors banking on Honeywell’s continued recovery and operational restructuring.
However, in the absence of dividends and amid cost inflation, a “SELL” recommendation may be appropriate for short-term investors seeking immediate returns.
Honeywell has delivered a complex financial year—marked by a spectacular revenue surge, dampened by rising costs, but crowned by a return to profitability.
While the company’s turnaround story is gaining traction, the real test lies in its ability to streamline operations, reduce finance costs, and return value to shareholders in subsequent periods. #Honeywell Flour Mills: Investors Place on Dividend Holiday amidst Earnings Recovery#
