In brief
- Top-line expansion and sharp fall in finance cost drive profit: Fan Milk’s growth in profit was largely driven by a 46.3% y/y rise in revenue to GHS 1.0bn and a 52.2% y/y plunge in finance costs to GHS 6.0mn
- Cold-Chain Expansion Under Project Kilimanjaro to Drive Revenue Growth in 2026: Fan Milk is advancing Project Kilimanjaro, investing in cold-chain infrastructure to scale production and strengthen distribution. Revenue surged 46.3% y/y to GHS 1.0bn in FY2025, signalling early success from the initiative. The project will expand refrigerated trucks, cold rooms, and vendor freezers, enhancing last-mile delivery and product availability. We expect these investments to drive higher sales volumes and deeper market penetration. Over the medium term, structural gains from Project Kilimanjaro should sustain topline momentum, supporting our five-year revenue CAGR forecast of 22.4%, above the historical 21.8%. We project revenue to rise 24.8% y/y to GHS 1.2bn in FY2026.
- Strategic CAPEX push to strengthen Fan Milk’s growth and margin outlook: Fan Milk’s CAPEX rose 108.1% q/q in 4Q2025 to GHS 36.0mn in FY2025, driven by Project Kilimanjaro and borehole installations. We expect investments in cold-chain infrastructure to improve last-mile delivery, boost volumes, and deepen market reach, while boreholes will reduce water costs. These initiatives support our five-year revenue CAGR forecast of 22.4% and lift average operating margins to 6.3%, up from a historical 3.6%.
- Near-Term margin pressure from elevated OPEX with medium-term recovery in view: Operating expenses surged by 34.7% y/y to GHS 274.6mn in FY2025, compressing operating margin by 0.2pp to 11.2%. The increase largely reflects a 45.5% y/y rise in sales and distribution costs to GHS 164.4mn and a 28.6% y/y increase in administrative expenses to GHS 81.7mn, underscoring the cost intensity of the company’s expansion phase. While we expect some moderation as expensive supply arrangements unwind in the medium term, we anticipate costs will remain elevated in FY2026, given the scale of ongoing investment. Consequently, we forecast operating margin to decline by a further 1.8pp to 9.4% in FY2026, reflecting near-term margin pressure but staying above the five-year historical average of 3.6%.
- Key risks to valuation: 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 optimization
Rating Summary:
We revise our rating on Fan Milk PLC from “HOLD” to “ACCUMULATE”, implying a 15.6% upgrade to our previous fair value of GHS 8.18 which translates into an 11.26% upside from the current price of GHS 8.50. Our rating reflects strategic CAPEX under Project Kilimanjaro, supportive VAT reforms, and short-term margin pressures. Revenue surged 46.3% y/y to GHS 1.0bn in FY2025, validating early benefits of expanded refrigerated trucks, cold rooms, and vendor freezers. We forecast FY2026 revenue of GHS 1.2bn (+24.8% y/y) and a five-year CAGR of 22.4%, above the historical 21.8%. CAPEX jumped 108.1% q/q in 4Q2025 to GHS 36.0mn in FY2025, which we expect to strengthen delivery efficiency and reduce reliance on external water, supporting a projected five-year average operating margin of 6.3% (historical 3.6%). We believe VAT reforms from 21.9% to 20.0% and removal of the 1.0% COVID levy will boost sales volumes. We expect operating margin to decline by 1.8pp to 9.4% in FY2026 as the cost intensity of the ongoing expansion phase persist. Our fair value combines DCF (40%), P/E (40%) and P/B (20%). relying on a risk-free rate of 15.01%, WACC of 18.6%, and 5.0% terminal growth.