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Nigerian Breweries: Analysts still differ on stock’s future returns

by Iheanyi Nwachukwu

February 22, 2018 | 12:33 am
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Despite weaker than expected performance of Nigerian Breweries Plc in its full year scorecard released last week, many analysts still differ on the stock’s future returns, writes Iheanyi Nwachukwu.

Many analysts have continued to state their views on the shares of Nigerian Breweries Plc following the release of the company’s full year scorecards last week.

Ratings such as ‘underperform’; ‘sell’; ‘hold’; and ‘buy’ have been assigned to the stocks by various analysts in their commentary, most of which were sent to INVESTOR.

Last week, Nigerian Breweries Plc released its full year 2017 results to the investing public and regulators which show the brewer reported marginal growth of 9.8percent in revenue to N344.563billion from N313.743billion in 2016.

Research analysts at Lagos-based Cordros Capital want investors to “sell” Nigerian Breweries shares; Vetiva Capital said investors should “hold” the stock, FBNQuest Research expects the stock to “underperform” the NSE ASI while analysts at United Capital Plc want investors to “buy”.

Nigerian Breweries Plc is the largest brewer in Nigeria and the second largest listed company on the Nigerian Stock Exchange (NSE).

Nigerian Breweries dominates Nigeria’s brewery market with approximately 60 percent market share and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks, and read-to-drink brands.

The company’s results in the full year in review show cost of sales increased to N201.013billion, from N178.219billion, up by 12.8percent.

Gross profit increased by just 5.9percent to N143.549billion, from N135.525billion in 2016. The company also announced a N33 billion profit after tax (PAT) for 2017 on a revenue of N344 billion. This represents a 16percent increase in Profit after tax from N28.4 billion in 2016. The Board of Directors recommended dividend of N33 billion to its shareholders.

The dividend recommendation, which amounts to a total dividend of N4.13 (four Naira thirteen kobo) per share for the 2017 operating year was part of the company’s filing to the Nigerian Stock Exchange on Thursday, 15th February 2018.

The recommended dividend is inclusive of interim dividend of N8 billion, which is N1.00 (one naira only) per share earlier paid by the company in November 2017. Following the merger with Consolidated Breweries effective December 2014, parent company Heineken maintains a 53 percent controlling stake in the larger entity.

Nigerian Breweries is listed on the Consumer Goods sector of the NSE main board under the Beverages –Brewers/Distillers subsector.

With a market capitalization of N1.023trillion at N128 per share as at Tuesday February 20, 2018; the company has Shares Outstanding of 7,996,902,051 units. The share price had reached 52-week high of N193 and 52-week low of N118.

The management of Nigerian Breweries discussed the results with investors/analysts in a conference call last Friday.

Nigerian Breweries management does not anticipate FX-related losses in 2018 financial year, given the sizeable clearance of dollar-denominated trade payables in 2017, and the expectation of continued healthy FX liquidity.

Analysts’ views on the results

Tunde Abidoye’s team of research analysts at Lagos-based FBNQuest Research had ahead of the conference call last Friday noted that the weak topline was underpinned by a weaker price / volume mix skewed in favour of value brands.

“We also believe that higher prices of soft agricultural commodities required by brewers was also likely responsible for the y/y contraction in gross margin. Barley prices increased by around 24percent year-on-year (y/y) in the final quarter of 2017”, they said in their first reaction to the results.

“On the back of these results, we expect to see downward revisions to consensus 2018 PBT forecast and a neutral to negative reaction from the market. Nigerian Breweries shares have underperformed the index this year. The shares have shed -3percent compared with the 11percent gain delivered by the index. We rate the shares Underperform. Our estimates are under review,” the analysts said. Their underperform rating implies that they expect the stock of Nigerian Breweries to underperform the NSE All Share Index over the next 12 months or a specified investment horizon.

Research analysts at United Capital Plc who noted that the weaker than expected performance was recorded amid a reduction in volume growth as feedback from additional price increase in third-quarter (Q3) 2017 kicked-in, updated their estimates for the company based on the  recently published numbers and reviewed their expectations for rest of the year.

“Nigerian Breweries re-rated a BUY at current price: Our outlook for the Brewer remains unchanged despite increasing competition in the space. We expect revenue growth to average 8-9percent into 2018 driven by product and cost leadership, national presence as well as product innovation”, said United Capital analysts.

They however expect AB-InBev, Heineken’s global competitor, to put up more fight for market share, especially in Southern Nigeria, going forward.

“We do not see the potential change in excise duty on beer having a significant negative impact on performance as this may be passed to consumers as further price increase. Adjusting our model assumptions for the above, we update our December 18 target price to N155.6, slightly above the earlier N154.6 and re-rated NB as a BUY, a 18percent upside versus market price of N131 (as at the time of commentary)”, the analysts said.

Among other comments, Cordros Capital said Nigerian Breweries “management’s outlook for 2018 is cautious from macro view point, and amidst a more intense competitive environment.”

“But whilst the economy (new mainstream) segment is expected to continue to underpin group volume, management however did acknowledge signs of moderating consumer down-trading, specifically confirmed by Heineken’s (an international premium brand) return to growth,” Cordros analysts said.

“Nigerian Breweries gross debt was N8.5 billion as at December 31, and while we expect new Commercial Paper (CP) issuances in the year, we have modeled interest expenses to halve in 2018F, on expected reduced working capital pressure (suggesting debt issuance will be relatively modest) and lower interest rates,” Cordros Capital analysts further noted.

Management comments

In a statement signed by Uaboi Agbebaku, Company Secretary/Legal Adviser, Nigerian Breweries Plc, the company noted that “whilst the foreign exchange situation improved in the course of the year, double digit inflation continued to impact both businesses and consumers. Nevertheless, the company was able to end the year with improved results through continuous focus and execution of the twin agenda of cost leadership and market leadership supported by innovation”.

The Board maintained that whilst there are some early signs of improvement in the macro-economic condition, this is yet to be reflected in consumer confidence. The Board remains confident that the Company has a clear strategy to deliver good return on investment to Shareholders as part of its commitment to Winning with Nigeria.


by Iheanyi Nwachukwu

February 22, 2018 | 12:33 am
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