Why Flour Mills Should Be Your Next Stocks to Buy

It is a new year, a new decade and a new chance to add more figures to your portfolio. While the current stock in your portfolio won’t keep its bullish run forever, you should be concerned about the next best stock to watch when it’s time to take profit.

Now you may ask, what stock should I buy to maintain the positive trend on my portfolio in 2020?

After screening for stocks using MACD, here is one non-banking stock you must key into when the price falls.

Flour Mill Nigeria Plc

You might think that the 53% appreciation in the share price of Flour Mills in the last 3 months means the stock is already overbought, this isn’t the case here, Flour Mill still has a great upside potential to N34-N35 which is like 47% growth from today’s close – N23.

Let’s look at the fundamentals of the consumer goods stock:

  • First Quarter – The company recorded a volume growth of 7% and an improvement in profit before tax to N5.5b (which is 6% higher than the figure posted in the previous comparable period). The group’s PAT increased by 17% to N4.2b against N3.6b in 2018.
    • Flour Mill management’s strategy to cut down massive exposure to debt also paid off as finance cost dropped significantly to N4.5b (from N6.2b)
  • Second Quarter – The company also recorded marginal growth in volume – 6% – while the profit before and after-tax print at N8.6b and N5.9b respectively. The former increased by 4% while the latter was 16%.
    • The finance cost in the same period went down by a whopping 21% to  N8,8b (from N11.2b). The management continued deleveraging strategy and lower interest rates helped lower this line item and I think, this a major driver of bottom-line going forward, except the CBN reverse its policies on OMO auction.
  • A combination of border closure which is believed to support the increasing demand for Pasta and Noodles should help drive Flour Mill  Q3 result.
  • I expect the company’s full-year PBT and PAT to expand by 18-19% which is quite impressive amidst a challenging operating environment.
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While all these make Flour Mill Nigeria attractive, should one buy now and what is the upside potential? 

To answer this, let’s use the MACD ( that helped me spot Access bank at 7.2, and Jaiz bank at 42k before they appreciated by 50%+ ) to analyse the stock and know where it is right now.

Here is the chart of Flour Mill Nigeria Plc: 

From the chart, you will see how a crossover to the downside (A to B) precede a sharp sell-off that led 66% loss. As we know. stocks won’t go down forever, there is always a bottom – marked from B to C, the stock appreciated by more than 100% before another bearish crossover occurred, Flour Mill lost 62% of its value.

With a 53% appreciation in the last 3 months, we have a fresh bullish crossover supported by a rising relative strength index of 52, what does this mean? Flour Mill Nigeria stock could appreciate to N34-N35 which  N3 below its 2018 high of N38. As of today’s market close, the stock sells for N23.

What is the best entry price?

The stock looks overbought on the weekly chart, wait for a reversal and average down from N20, then exit at N34-N35.

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