Tuesday, February 21, 2017 10:35 AM /FBNQuest Research
Event: Nigerian Breweries reports Q4 2016 results
Implications: No material revisions to consensus 2016 PBT forecast expected
Positives: Sales grew 15% y/y; sales, PBT and PAT surprised positively
Late yesterday Nigerian Breweries (NB) published its Q4 2016 results which showed that both PBT and PAT fell by around 30% y/y to N11.9bn and N8.3bn respectively even though sales grew strongly by 15% y/y to N91.0bn. This was due to the combination of a gross margin contraction of -1,286bps y/y to 41.9% and a 22% y/y rise in net interest expense.
Apart from the visible slowdown in consumer discretionary spending which has resulted in a shift in consumption patterns towards mainstream (previously value brands), issues with fx illiquidity and a signicantly weaker naira (which is down by 40% on the interbank market since the devaluation in June 2016) have put pressure on NB’s gross margin.
According to Heineken (NB’s parent), unit volume for its Nigerian business, of which NB is a significant part, grew by mid-single digits, driven by strong performance of the economy brands, mainly Life and Goldberg. Price increases of around 10-11% on average in Q2 2016 support the view that the value brands within the portfolio significantly outperformed the mainstream and premium brands. Sequentially, all key headline items across the P&L grew strongly q/q.
While sales were up by 39% q/q, PBT and PAT grew much faster by 429% q/q and 695% q/q respectively. Although a sizable chunk of the q/q growth is attributable to seasonality, the key growth driver was a remarkable (+604bps) q/q expansion in gross margin.
Compared with our forecasts, sales beat by 14%. However, PBT and PAT beat by much wider margins of 22% and 35% respectively, mainly due to the positive surprise in gross margin. We had modelled a gross margin expansion of around 398bps q/q vs. the 604bps delivered by the company.
On a full year basis, sales grew by 7% y/y to N314bn. However, both PBT and PAT declined by between 25% y/y and 28% y/y. Similar to the trends in the quarterly numbers, a 586bp y/y contraction in gross margin and a 72% y/y surge in net interest expense were the key drivers behind the y/y reduction in earnings.
Compared with our estimates, sales, PBT and PAT were 4%, 6% and 8% ahead. The management of the company has proposed a final dividend of N2.58 per share, which is 30% higher than our N1.98 forecast and implies a yield of 2.2%. Having paid an interim dividend of N1.00 previously, the company’s total dividend payout for 2016 amounts to N3.58 (vs. N4.80 in 2015) or a payout ratio of 100% compared with the 90% that we had modelled.
Furthermore, the company says it is considering issuing new bonus shares instead of the cash payment, subject to the approval of shareholders.
NB’s 2016 PBT of N39.7bn is in line with consensus PBT forecast of N39.3bn. As such, we expect no material revisions to consensus PBT forecast. NB shares have underperformed the index ytd. They have shed -19% ytd vs. the -6.0% sell return on the index.
We rate NB Underperform. Our estimates are under review.
Nigerian Breweries Q4 2016 results: actual vs. FBNQuest Research estimates (N millions)
Source: NSE; FBNQuest Estimates
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