Rating Summary:
We revise our rating on Fan Milk PLC to a HOLD (from “ACCUMULATE” at HY2025) as we see limited near-term upside from the current price of GHS 8.00, following a 116.2% year-to-date rally that, in our view, has already priced in the company’s strategic initiatives. Our medium-term outlook anticipates sustained support from productivity investments and commercial revitalisation under the “Bring Back the Pride” roadmap (2024 – 2029). Key growth catalysts include Project SANKOFA, which reinforces vendor empowerment and execution discipline, and Project Kilimanjaro, which expands cold-chain infrastructure to strengthen last-mile delivery and distribution capacity.
We forecast revenue to grow at a five-year CAGR of 18.9%, driven by improved route-to-market efficiency and enhanced product availability. However, profitability remains constrained by elevated input costs and foreign exchange exposure, as less than 50% of raw materials are sourced locally. CAPEX increased by 76.5% q/q to GHS 17.3mn in 9M2025, with a portion of related expenses recognised as exceptional items.
We expect near-term margin pressure, with operating margin projected to decline from 11.6% in FY2024 to 10.4% in FY2025 and further to 8.1% in FY2026, reflecting cost absorption from expanded infrastructure. While we view these structural investments as critical to long-term competitiveness and revenue growth, we believe the current valuation fairly reflects the company’s value at current levels, warranting a neutral stance. We derived our fair value estimate using a blended valuation approach, assigning weights of 40% to discounted cash flow, 30% to the price-to-earnings multiple, and 30% to the price-to-book multiple. The intrinsic value reflects a risk-free rate of 15.69%, a weighted average cost of capital (WACC) of 19.4%, and a terminal growth rate of 5.0%.