HONYFLOUR: Man Must Wack

Marie Antoinette almost certainly never said, “Let them eat cake.” Rousseau had written the line before the young Austrian princess even arrived in France. History, however, prefers a well-dressed villain to a footnote.

Nigeria has its own, less ornamental doctrine: man must wack.

It is not philosophy in the French sense. Nobody needs a powdered wig. It is simply the recognition that after the government, the naira and the electricity company have concluded their daily conspiracy, people must still eat.

And flour is everywhere.

It is in our indefatigable Agege bread, compressed into a loaf sturdy enough to survive Lagos traffic. It is in meat pies of uncertain genealogy, roadside buns, biscuits, noodles and shawarma wraps. At the other end of the social ladder, flour becomes the elaborate wedding cake descending from on high while dry ice rolls across the floor and an MC announces buttercream as though it were a sovereign wealth fund.

Rich man, poor man, roadman, society bride: they all eventually meet at the mill.

That is the beginning of the contrarian case for Honeywell Flour Mills. Not that flour is glamorous. It is precisely that it is not. People may postpone the new television, the imported suit or the December trip to Dubai. Lunch tends to resist postponement.

But necessity alone does not make a good investment. Water is essential too, and plenty of shareholders have drowned in it.

Bear case first

The central problem is that HONYFLOUR sells a commodity product using imported wheat, expensive logistics and a perpetually nervous naira. Brand recognition helps, but nobody has yet built a tollgate around Agege bread.

Flour is flour until it is not. The industrial baker will change suppliers for half a naira and a promise of punctual delivery. The household buyer may recognise Honeywell, but recognition is not necessarily devotion. This is no Hermès handbag. Nobody inherits a bag of semolina and whispers about the craftsmanship.

Revenue fell 3.4% to ₦360.8 billion in FY2026, while operating profit declined 8.3% to ₦16.6 billion. Selling and distribution costs rose from ₦4.6 billion to ₦11.4 billion. Profit after tax improved, but approximately ₦9.2 billion of finance income assisted the performance. The flour mills milled; the treasury department provided backing vocals.

Cash flow also needs inspecting without sunglasses. Reported operating cash flow reached ₦126.6 billion, but it benefited from a ₦75.9 billion increase in trade and other payables. The company advanced ₦153 billion to related parties and received ₦64 billion back. After capital expenditure and those net advances, the cash genuinely available to ordinary shareholders was considerably less magnificent.

There is no allegation of wrongdoing here. But when the group structure becomes essential to understanding cash generation, minority shareholders should keep one hand on the calculator and the other on the cutlery.

Then there is wheat. Nigeria imports much of what it consumes, leaving HONYFLOUR exposed to global prices, freight, port inefficiency and scarce foreign exchange. Devaluation reaches the factory long before it reaches the consumer’s salary. Management can raise prices, but only until the loaf shrinks, the baker changes supplier or the customer replaces bread with another carbohydrate.

So much for the funeral arrangements.

The contrarian morsel

The interesting part is that the business may be becoming less difficult.

Despite lower revenue, gross profit increased 13% to ₦36.4 billion. Gross margin rose from 8.6% to 10.1%. A 145-basis-point improvement sounds like administrative dust until one remembers that milling is a thin-margin business. Preserve that gain, control distribution costs and modest operational progress can produce rather immodest earnings growth.

HONYFLOUR also sits inside the Flour Mills of Nigeria ecosystem. FMN brings procurement scale, distribution reach, manufacturing expertise and opportunities to rationalise production. This is not a moat in the Hermès sense. Nobody queues outside a bakery demanding that only Honeywell wheat touch their baguette. But scale can produce a shallow ditch with several irritated crocodiles.

Demand, meanwhile, remains stubborn. Nigeria’s growing population, urbanisation and appetite for convenient food should support long-term flour consumption. Even when consumers trade down, carbohydrates remain seated near the head of the table.

And there was no dilution during the year. In a market where companies occasionally treat shareholders like a village well, that deserves a small round of applause.

The price of bread

At ₦18.25, HONYFLOUR trades at roughly 8.8 times audited earnings. It looks cheap until one considers the weak dividend, related-party movements and contribution from finance income.

Headline ROIC may be 18–20%. Adjusting for group financing, supplier credit and the loss-making Sagamu operation produces a more credible underlying range of 11–14%. Respectable, but hardly patrician.

At ₦18.25, the market has already eaten much of the base-case cake. The contrarian entry appears nearer ₦14–₦15, where the price begins to compensate for commodity economics, cash-flow questions and a 1.1% dividend yield.

HONYFLOUR is not yet a compounder. It is a turnaround with an essential product, improving gross margins and a potentially useful parent company.

Nigeria will continue eating bread. That is the easy thesis.

The harder question is whether, after the wheat trader, transporter, lender, related company and government have taken their slices, anything nourishing reaches the minority shareholder.

Man must wack. Whether the shareholder will wack with him remains unproven.