Initial Analysis: Looks Like Nigeria Breweries Is In Trouble Waters

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Nigerian Breweries Plc (NB) released its unaudited 9M 16 financial statements, wherein revenues rose 3.6% YoY to₦223 billion while PBT and PAT declined 26% and 23% YoY to N37 billion and N26 billion respectively. In particular, Q3 16 result reveals significant deterioration in earnings with PBT and PAT plunging 66% YoY and 78% YoY to N2 billion and N1 billion respectively. Nonetheless, NB declared an interim dividend of ₦1 per share which implies a dividend yield of 0.7% using last trading price of ₦146.

 

Overall, steep decline in earnings stemmed from sizable gross margin pressures over the quarter (-13pps YoY to 36%) with NB’s substantial local raw material sourcing exposing it to pressures from elevated domestic cereal prices (YoY: sorghum: +66%, Maize: +70%). In addition, we believe rising share of lower margin value beer in sales mix heaped more pressure on gross margins.

 

In the review period, NB’s 49% YoY cut in administrative expenses led to significant decline in OPEX (-12% YoY) and drove moderation in operating pressures with EBIT margins shedding a relatively tamer 8pps YoY  to 6.1%.

 

Currently, NB trades at a P/E of  35.6x compared to Bloomberg Middle and East Africa Peers at 36.45x. Our model is under review.

 

More analysis to follow.