In brief
- Revenue strength lifts earnings amid rising cost pressures: Fan Milk recorded a 14.6% y/y growth in net profit to GHS 27.6mn in 1Q2026, supported by a strong expansion in revenue and improved finance income, although cost drag slowed the earnings momentum.
- Near-term cost pressures weigh on earnings despite strong revenue growth: We expect Fan Milk to face sustained near-term cost pressures as it continues to scale its cold chain infrastructure. Operating expenses increased by 50.5% to GHS 90.8mn, associated with the ongoing expansion. We believe this cost uplift poses near-term earnings drag from its distribution-led growth strategy, where infrastructure investment directly translates into higher recurring operating costs. We expect these pressures to persist in the near term as the company continues to deploy additional freezers, cold rooms, and refrigerated distribution assets. While these investments are structurally supportive of long-term volume growth and revenue quality, they elevate costs in the short term, particularly through utilities, maintenance, depreciation charges and selling and distribution cost. This cost expansion has already weighed on earnings performance, partially offsetting the strong 32.8% y/y revenue growth to GHS 321.6mn in 1Q2026. Overall, we view cold chain expansion as a strategic but cost-intensive phase, with near-term earnings pressure to persist until scale efficiencies and higher utilisation begin to offset the elevated operating cost base.
- Key risks to valuation: Elevated cost pressures from infrastructure investments, Unexpected upward reversal in inflation, foreign exchange volatility, elevated interest rates, utility tariff hikes, rising energy prices, price surge in skimmed milk powder and other key raw materials, intensified competition, unfavorable tax policy shifts, water scarcity and execution risk in route-to-market optimisation
1Q2026 Earnings Update
Fan Milk Plc (“FML”) released its unaudited 1Q2026 financial results, reporting a 14.6% y/y growth in net profit to GHS 27.6mn in 1Q2026. The growth in profit was mainly driven by a 32.8% y/y surge in revenue to GHS 321.6mn and a 15.0% y/y increase in finance income to GHS 3.9mn. We believe improved distribution reach through Project Kilimanjaro, coupled with sustained demand across major product categories, supported revenue growth during the period. Cost of sales increased by 13.1% y/y to GHS 171.4mn, despite a 58.2% y/y plunge in cocoa futures, a modest 7.3% y/y rise in the price of skimmed milk powder and a 41.2% y/y appreciation of the cedi against the US Dollar in 1Q2026. We believe the continued expansion of the company’s cold chain infrastructure has started yielding topline benefits by supporting stronger product availability and deeper market penetration. However, the resulting growth in sales volumes has also translated into higher cost of sales. Operating expense surged by 50.5% y/y to GHS 90.8mn, despite the single digit 3.4% average inflation in 1Q2026, largely due to a 67.6% y/y surge in sales and distribution cost to GHS 56.1mn and a 33.9% y/y rise in administrative expenses to GHS 26.9mn. Overall, we expect investments under Project Kilimanjaro, borehole installation initiatives, and other revenue-suporting initiatives to further enhance operational resilience, support broader outlet coverage, and gradually improve revenue mix towards higher-value dairy SKUs, thereby strengthening revenue quality over time. However, we remain cautious on the earnings trajectory, as persistent cost pressures, largely related to execution of project Kilimanjaro, caps earnings growth. With limited visibility on rapid efficiency gains and utilisation improvements in the immediate term, we expect operating leverage to remain subdued, leaving downside risk to profitability if cost escalation continues to outpace revenue conversion. While the growth narrative remains intact, we maintain our fair value of GHS 9.46 from our FY2025 report, with a SELL bias given the risk that earnings expansion will lag the pace of cost escalation in the immediate term with current valuation already reflecting near-term earnings.