All indicators of the Nigerian Stock Exchange (NSE), at the close of last week's trading point to the fact that most investors in the country have continued to put their money where their mouth really is, going by the robust growth in the share prices of many stock listed in the food/beverages and tobacco sub-sector.

This fact can be seen in the sharp 50.85 per cent year-to-date rise in the food/beverages and tobacco 10 index of the NSE, almost doubling the NSE All-Share-Index's 29.3 per cent, while significantly outpacing the 33.1 per cent rise in the blue-chip NSE-30 index, at the end of trading last Friday.

According to the performance ranking of quoted companies prepared and pasted on the website of Cashcraft Asset Management, there were four stocks in the food/beverages sub-sector on the list of 25 best performing companies.

A major highlight of the list showed that as of last weekend, two food/beverages stocks successfully pushed the former occupant of the premier position on the list- Ikeja Hotels Plc with 129.89 per cent return down to the fourth position. Cadbury Nigeria took over the driver's seat with a 224.21 per cent year-to-date performance, followed by Dangote Flour Mills with 148.98 per cent returns. National Salt Company, another member of the Dangote Group occupied the seventh position with 113.82 per cent return year-to-date, trailed by sub-sector peer- Flour Mills of Nigeria, on the 13th position.

Market watchers believe investors may have been acting on the report by analysts at the Global Research team at HSBC Bank Plc, which in a report titled "Nigerian Flourmill," dated April 8, 2010, estimated that wheat consumption in the country would rise by 8.0 per cent, driven by increasing urbanisation and sophistication in the food industry. This is to be helped by an expected 5.0 per cent rise in wheat consumption per capital from (HSBC) estimated 3.7 metric tons of flour in 2009 or 24 kilogrammes per capital especially with the rapid growth in restaurant chains across the country.

Flour Mills of Nigeria and Dangote Flour Mills, according to the report, "have the largest and most efficient capacity in the sector and should capture most of the market growth. They have also moved up the value chain into pasta and noodles, which should see strong growth in Nigeria, and they will continue to invest in higher-margin retail food products."

The report buttressed this with the fact that both companies own port concessions, besides investing in large fleet of trucks to enable them run their own distribution services to the mills and bakeries, a move expected to boost market share significantly.

The fact that the DFM achieved strong margins in 2008 when wheat prices soared, according to the HSBC report, is a point to the fact that should the current lower price regime change; the cost cutting efforts of the company will again be of help.

"2009 and 2010 should be much better years, thanks to the improved cost base, lower wheat prices and strong expected growth in retail products," the report added, foreseeing the possibility of DFM growing sales and margins, going forward on the back of the 75 per cent and 100 per cent expansion of its flour and pasta capacities so far. This is in addition to the 113 per cent growth in the noodles and bags potential.

These expansions are expected to begin to yield fruits soon, going by the strong 23 per cent contribution to estimated revenue by 2013, from 18 per cent in 2008; and 33 per cent to gross profit from 14 per cent within the review period.

HSBC analysts estimate that between 2008 and 2013, revenues for both Flour Mills and Dangote Flour would improve by 15 per cent on the back of better utilisation and 26 per cent resulting from capacity expansion respectively.

DFM, the report continued, "had a very strong 209 as it began reaping the benefits of its increased capacity and investment in energy self-sufficiency. We expect DFM to continue to improve and gain market share (to 29 per cent in 2013). It will however remain a distant second to Flour Mills of Nigeria, which we expect to have a (estimated) market share of 46 per cent in 2013"

Dangote Flour, noted the report also continues to benefit immensely from owning a power generating plant to supply energy, thereby reducing the impact of infrastructure challenges that have continued to plague the country.

Last year, Dangote Flour commissioned the expansion of its noodles factories in Kano, Ikorodu and Calabar, while continueing with its production expansion capacities in the Apapa, Calabar and Ilorin factories. These are part of plans to expand the current 4,800 metric tons of milling capacity per day to 7,300 metric tons in order to diversify its production.