In brief
Earnings Update
- Revenue Growth and Lower Cost of Sales Power Earnings: Fan Milk released its unaudited 9M2026 financial results, reporting a 308.9% y/y surge in net profit to GHS 173.3mn, above our estimate by 48.3%. The growth in profit was mainly driven by a 30.2% y/y increase in revenue to GHS 945.8mn, a 14.1% y/y decline in cost of sales to GHS 407.0mn and a 55.1% y/y rise in finance income to GHS 14.6mn.
Valuation Update
- We maintain our “HOLD” rating and fair value of GHS 13.70 per share for Fan Milk. We raised our fair value from GHS 9.46 in our 1H2026 update, when we upgraded the stock from the “SELL” recommendation in our 1Q2026 report. Since then, the share price has risen 5.1% to GHS 13.98, turning the previous 3.0% upside into a 2.0% downside. The 9M2026 results ran ahead of our expectations and strengthened the earnings case. However, with the stock up 74.9% year-to-date, we believe the market has already priced in much of the improvement. Further re-rating, in our view, would require evidence that the 9M2026 margin gains can be sustained as input cost tailwinds fade.
Strategic Near-to-Medium-Term Outlook
- Fan Milk’s medium-term growth outlook remains constructive, supported by continued investment in cold-chain infrastructure, wider distribution coverage and the removal of the 20.0% excise duty on locally manufactured fruit juices, effective October 2026. We expect Project Kilimanjaro to sustain revenue expansion and strengthen market penetration, while the excise duty relief should provide incremental support to gross margins from 4Q2026. Historically strong fourth quarter seasonality, coupled with improved product availability, further positions the company for stronger revenue performance in the final quarter. However, we expect some moderation in the exceptional margin gains recorded in 9M2026 as skimmed milk powder prices rise, cocoa-related cost benefits diminish and potential cedi depreciation feeds into future procurement costs. El Niño also presents an additional risk to global dairy and sugar supplies. Overall, we expect infrastructure-led growth and fiscal relief to support performance, although emerging input cost and currency pressures could temper margin expansion.
Key Risks to Valuation
- Elevated cost pressures from infrastructure investments, higher 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, execution risk in route-to-market optimisation and weaker consumer demand.