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22 April 2016
Nigerian Breweries Plc. | Earnings Report
3 months ended 31st March, 2016
Higher input and finance costs compress margins
Base effects flatter sales growth
•
Nigerian Breweries Plc. (NB) reported 10.9% YoY
growth in revenues to N77.6 billion. Relative to our
forecast, sales was largely in line (Q1 16E: N76.1 billion)
reflecting the low 2015 base when supply chain issues
adversely impacted sales.
Reading through parent company commentary, volume
growth over the period was driven by value brands
%chg
10.9%
3.9%
5.0%
3.5%
Balance Sheet Data
2016-Mar 'm 2015-Dec 'm
26,899
28,410
Inventory
Receivables
24,618
16,512
Cash
9,865
5,107
Payables
83,208
85,246
182,844
172,322
Net Assets
%chg
-5.3%
49.1%
93.2%
2.4%
-0.8%
Stock Data
N105.02
Price
N92.44– N158.00
52 week range
Market Cap. (N'm)
832,714
1-month Avg. Vol
953,583
Curr. P/E
21.4x
NB:NL
Bloomberg Ticker
Nigerian Breweries Plc- Share Price Trend
Goldberg, Life and 33 Export. Over the period, NB beer
prices were largely unchanged from 2015 levels.
Figure 1: Trend in NB revenue growth
25.0%
18.8%
20.0%
12.7%
15.0%
10.0%
6.8%
5.0%
10.3%10.9%
4.7%
1.4%
0.0%
-5.0%
Source: Company Financials, ARM Research
Q1 2016
Q4 2015
Q3 2015
Q2 2015
-8.5%
Q1 2015
Analyst(s)
Q4 2014
Q2 2014
Q3 2014
-5.7%
-10.0%
Q1 2014
•
Income Statement Data
2016 – 3M'm 2015 – 3M'm
Revenue
77,555
69,922
15,008
14,438
PBT
4,553
4,336
Tax
10,454
10,102
PAT
Temitope Oladimeji
[email protected]
Rising sorghum prices and changing sales mix underpin margin
compression
•
Q1 16 COGS tracked faster than revenues (+11.9% YoY) as gross profits rose
9.9% YoY to N37.3 billion with related margins contracting 43bps YoY to 48.1%.
Given that NB sources about 60% of raw materials locally, margin pressures reflect
higher mean sorghum prices (+28.9% YoY) as fuel shortages over much of Q1 16
drove cereal prices higher. Furthermore, we believe margin compression also
reflects the changing sales mix as cheaper value brands displace higher margin
premium brands.
Figure 2: Trend in domestic sorghum prices
Sorghum (N/kg)
75
70
65
60
55
50
45
Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
40
Source: Company Financials, FEWSNET, ARM Research
•
Q1 16 operating expense rose slower than revenues (+9.9% YoY to N19.4 billion),
which resulted in opex-to-sales declining 23bps YoY to 25.1%. This, we believe,
reflects a rationalization of opex to temper earnings weakness amidst a challenging
operating environment. Thus, operating profits rose 9.9% YoY to N18 billion
despite related margins contracting 21bps YoY to 23.2%.
Higher short term debt underpins surge in net finance expenses
•
Extending trends in Q4 15, Q1 16 net finance expenses rose 54.8% YoY to N3
billion, largely reflecting impact of ST borrowings which jumped 41.9% YoY to
N32.6 billion. The development comes despite NB’s mention of interest savings
following its decision to replace commercial banks’ credit lines with a N100 billion
Commercial Paper (CP) program.
Figure 3: Debt mix
2%
44% 45%
Q1 2016
Q3 2015
16% 24%
Q2 2015
Q1 2014
15%
Q4 2013
Q3 2013
Q2 2013
10% 18% 12%
29%
98% 100%100%
Q1 2015
41%
Q4 2014
85%
0% 0%
56% 55%
84% 76%
Q3 2014
90% 82% 88%
71%
Q2 2014
59%
Q1 2013
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
LT debt
Q4 2015
ST debt
Source: Company financials ARM Research
•
Despite higher input and finance costs, sales growth ultimately filtered through
leading to PBT and PAT rising 3.9% and 3.5% YoY expansion to N15 billion and
N10.5 billion respectively. Nonetheless, PBT and PAT margins tumbled 130bps
YoY and 97bps YoY to 19.5% and 13.5% respectively.
Margin displacement from higher value beer share to weigh on
2016 earnings
•
Over the rest of 2016, constrained consumer purchasing power should extend
trend of rising value brands volumes. However, rising sorghum prices and
increased proportion of value beers in the sales mix should continue to weigh on
margins. This gross margin outlook is complicated by NB’s commentary about
increasing difficulty associated with obtaining FX at the official exchange rate.
Furthermore, recent switch to a hawkish monetary policy stance raises prospect for
rising finance charges in subsequent quarters. In summary, outlook speaks to softer
earnings trajectory over subsequent quarters in 2016.
•
NB trades at a current P/E of 21.4x vs. 19.3x and 40.3x for Guinness Nigeria Plc.
(Guinness) and International Breweries Plc. (IB) respectively, and at a forward P/E
of 21.9x vs. 22.5x and 33.9x for Guinness and IB respectively. With last trading
price at an 8.6% discount to our last communicated FVE (N114.06), our rating on
the stock changes to NEUTRAL from previous OVERWEIGHT.
Summary of Results and Forecasts - Naira (N)
QUARTERLY
Income Statement
(N’mln)*
Sales
Cogs
Gross profit
Operating cost
Operating profit
Profit before taxation
Tax
Profit after taxation
Earnings per share
Q4 2015A
Q1 2016A
Q2 2016F
Q3 2016F
Q4 2016F
78,987
37,220
41,767
20,298
20,856
1,977
18,878
6,185
1.56
77,555
40,273
37,282
17,677
16,368
1,929
14,438
4,336
1.32
82,560
40,042
42,518
22,154
8,860
2,287
6,573
1,875
1.71
67,121
32,554
34,567
22,431
19,462
2,006
17,456
5,072
2.43
84,004
40,742
43,262
19,431
17,994
2,986
15,008
4,553
1.56
FY 2014A
FY 2015A
FY 2016F
FY 2017F
FY 2018F
266,372
130,788
135,584
70,441
66,861
5,399
61,462
18,942
42,520
5.36
5.48
293,906
151,444
142,462
80,717
62,229
7,714
54,515
16,459
38,056
4.80
4.80
309,777
159,535
150,242
82,091
69,080
2,622
66,458
18,608
47,850
6.03
4.22
326,195
166,359
159,835
83,180
77,961
2,017
75,944
22,024
53,920
6.80
4.76
343,157
173,294
169,863
84,073
86,819
212
86,607
25,982
60,625
7.65
5.35
Balance Sheet (N‘mln)
Assets
Fixed assets
Inventories
Trade debtors
Cash and other bank
balances
Total Assets
Liabilities
Trade Creditors
Borrowings
Total liabilities
Shareholders' fund
FY 2014A
FY 2015A
FY 2016F
FY 2017F
FY 2018F
176,999
25,428
27,606
193,800
28,478
16,357
197,299
28,410
16,512
203,052
25,526
18,277
204,591
27,449
19,898
Key Ratios
Profitability margins
Gross margin
EBITDA margin
Operating margin
PBT
Net margin
Valuation multiples
EV/EBITDA
P/CF
P/B
P/E
ANNUAL
Income Statement
(N’mln)
Sales
COGS
Gross profit
Operating cost
Operating profit
Net finance cost
PBT
Tax
PAT
Earnings per share
Dividend per share
10,758
5,700
5,107
22,066
40,506
344,712
349,229
356,219
378,046
401,625
80,499
60,972
172,594
172,118
83,283
63,239
177,265
171,964
85,246
43,818
183,897
172,322
86,947
45,147
191,370
186,676
91,498
46,666
198,773
202,852
FY 2014A
FY 2015A
FY 2016F
FY 2017F
FY 2018F
50.9%
34.1%
26.4%
23.1%
16.0%
48.5%
30.3%
27.5%
18.5%
12.9%
48.5%
29.9%
26.5%
21.5%
15.4%
49.0%
32.4%
25.5%
23.3%
16.5%
49.5%
33.4%
24.5%
25.2%
17.7%
8.7
12.1
4.5
18.1
8.8
10.6
4.5
20.2
8.3
9.9
4.1
16.1
7.2
8.9
3.8
14.3
6.4
8.6
3.5
12.7
Source: ARM Research *unless otherwise stated
ARM ratings and recommendations
ARM now employs a two-tier rating system which is based on systemic importance of the security under review and the deviation of our target price for
the stock from current market price. We characterize systemic importance as a function of a stock’s ranking among the group of top 20 stocks by NSE
market capitalization over a trailing 6 month period (minimum) to the review date. We adopt a 5 point rating system for this category of stocks and a 3
point rating system for stocks outside this group. The choice of top 20 stocks arises from the consideration that this group of stocks constitutes >75% of
overall market capitalization and stocks outside this group are generally less liquid and individually account for <<1% of market capitalization. For
stocks in both categories, the basis for ratings subject to target price deviation is outlined below:
TOP 20
NON-TOP 20
Rating
Deviation
Rating
Deviation
STRONG BUY
>20%
BUY
>20%
OVERWEIGHT
10% — 20 %
NEUTRAL
5% — 20 %
NEUTRAL
0% — 10 %
SELL
<5%
UNDERWEIGHT
-5% — 0%
SELL
<-5%
RECOMMENDATION KEY
Rating
Recommendation
BUY
Accumulate security to a substantial extent constrained only by portfolio diversification considerations
OVERWEIGHT
NEUTRAL
Accumulate security to an extent moderated by cognizance of its benchmark weight
Maintain status quo for security with respect to current holding—i.e. keep if already holding and don’t buy otherwise—subject to
reasonable portfolio constraints
UNDERWEIGHT
Minimise exposure to security taking cognizance of its index weighting
SELL
Sell-off security completely from portfolio
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