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NB Plc Q3 2017 Results - PBT and PAT Declined by -84% YoY and -75% YoY Respectively

Proshare

Thursday, October 26, 2017 /2:44PM / FBNQuest Research 

Event
: Nigerian Breweries reports Q3 2017 results

Implications
: Downward revisions to consensus FY 2017 PBT forecast likely  

Positives
: Sales grew by 13% y/y, though expected

Negatives:
PBT and PAT declined by -84% y/y and -75% y/y respectively 

Earlier this morning, Nigerian Breweries (NB) published its Q3 2017 results which surprised negatively. Sales of N73.7bn grew by 13% y/y while PBT and PAT declined by -84% y/y and -75% y/y to N369m and N260m respectively. The y/y sales growth was completely offset by a combination of factors: 1) a -143bp y/y contraction in gross margin to 34.4% 2) a 16% y/y rise in operating expenses and 3) a 47% y/y growth in net finance costs. These negatives led to the significant y/y PBT decline. PAT declined by a softer margin due to a lower tax rate of 30% vs. a tax rate of 53% in the corresponding quarter of 2016. 

On a sequential basis, sales were down -18% q/q while PBT and PAT both declined by 98% q/q. The q/q sales decline is not surprising because of seasonality trends. The end-Sep quarter is usually one of the weaker quarters for the brewers. In addition to the q/q sales decline, Q3 gross margin contracted by -1,103bps q/q and completely offset a 25% q/q decline in net finance costs, leading to the weak bottom line. Compared with our estimates, Q3 sales were in line. However, PBT and PAT missed significantly, mainly due to negative surprises on the gross margin, operating expenses and net finance costs lines.
 

On a 9M basis, sales of N254.7bn advanced by 14% y/y. PBT and PAT of N34.4bn and N24.0bn grew by 24% y/y and 19% y/y respectively. 9M gross margins contracted by -184bps y/y and operating expenses grew by 11% y/y. However, these were not strong enough to
offset the y/y sales growth and a -23% y/y decline in net finance costs, leading to the PBT growth. On an annualised basis, 9M sales are tracking behind consensus’ FY estimate of N361bn by 6%. PBT and PAT are behind by 28% on average. 

Despite the CBN’s intervention in the fx market through the NAFEX window, surprisingly, NB was not able to expand gross margins during the quarter.
Just as we were beginning to buy into the come-back story of the brewers following a series of promising results reported in the last few quarters, this set of numbers and Heineken (NB’s parent’s) comments on NB’s challenges sourcing fx have come as a surprise to us. We await clarification on this. Heineken’s comments regarding mid single-digit volume declines were expected; however, we expected price increases to more than compensate as we have seen in previous quarters. 

On the back of these results, we expect to see downward revisions to consensus FY 2017 PBT forecast. NB shares have gained just 4% this year and have underperformed the broad index and the sector by -32% and -67% respectively.
 

Although NB declared an interim dividend of N1.00 per share (implying a yield of 0.6% and a payout ratio of 33%), we expect the market
’s reaction to be negative. 

We rate the shares Underperform. Our estimates are under review.
 

Nigerian Breweries Q
3 2017 results: actual vs. FBNQuest Research estimates (N millions)

Q3 2017

9M 2017

 

Actual

Y/y

Q/q

FBNQuest est.

Act. vs FBNQuest est (%)

Actual

Y/y

FBNQuest est.

Act. vs FBNQuest est (%)

Sales

73,680

12.8%

-17.9%

73,838

-0.2%

254,690

14.4%

254,848

-0.1%

Cost of sales

-48,324

15.3%

-1.3%

-42,826

12.8%

-148,000

18.1%

-142,502

3.9%

Gross profit

25,356

8.3%

-37.8%

31,012

-18.2%

106,690

9.5%

112,346

-5.0%

-Gross margin

34.4%

-143bps

-1103bps

42.0%

-759bps

41.9%

-184bps

44.1%

-219bps

Dist. and admin. exp

-22,589

15.7%

1.4%

-21,413

5.5%

-66,424

11.0%

-65,248

1.8%

Operating profit

2,767

-29.0%

-85.0%

9,599

-71.2%

40,266

7.2%

47,098

-14.5%

Other income

212

79.5%

-86.8%

353

-39.8%

2,031

404.8%

2,171

-6.5%

Net interest expense

-2,610

47.4%

-25.3%

-2,433

7.3%

-7,869

-22.6%

-7,692

2.3%

Net gain/ loss on fx

0

n/a

n/a

0

n/a

0

n/a

0

n/a

PBT

369

-83.6%

-97.8%

7,519

-95.1%

34,428

23.9%

41,578

-17.2%

-PBT margin

0.5%

-294bps

-1802bps

10.2%

-968bps

13.5%

104bps

16.3%

-280bps

Tax

-109

-90.9%

-97.5%

-2,256

-95.2%

-10,417

35.6%

-12,563

-17.1%

-Tax rate

29.6%

-2390bps

363bps

30.0%

-40bps

30.3%

261bps

30.2%

4bps

PAT

260

-75.1%

-97.9%

5,263

-95.1%

24,011

19.4%

29,014

-17.2%

- PAT margin

0.4%

-125bps

-1336bps

7.1%

-678bps

9.4%

40bps

11.4%

-196bps

  Source: NSE; FBNQuest Estimates 

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