Monday, July 31, 2017 12:40PM/ Vetiva Research
· H1’17 revenue up 15% y/y to ₦181 billion on stronger prices
· Lower net finance expenses supports earnings
· H1’17 PAT prints in line with expectation, up 25% y/y
· FY’17 estimates little changed, TP revised to ₦120.72, SELL
Cost improvement, strong revenue drive H1’17 EPS 25% higher y/y
Contrary to our 6% q/q revenue growth estimate, NB recorded a 2% q/q decline in Q2’17 amidst slightly weaker than expected volume roll-out in the quarter. Nonetheless, revenue for the half year was up 15% y/y to ₦181 billion amidst stronger average selling prices.
With consumer sentiment unchanged, we expect that mainstream beer brands would have retained a higher proportion of total volumes sold within the period. Gross margin for H1’17 came in strong at 45%, 100bps higher than our estimate and Q1’17 figure of 44%.
However, the margin for the period is 208bps lower y/y as the lower price mix (from a higher contribution of value products) as well as higher cost of imported raw materials following the 2016 naira devaluation continue to weigh on performance.
Amidst the brewer’s dedicated cost savings program however, operating expenses (OPEX) continues to chart a different path, with OPEX to sales ratio declining 141bps y/y to 24% in H1’17.
Earnings were further supported by a surprising surge in Other income (H1’17: ₦1.8 billion vs. H1’16: ₦0.3 billion). With this, H1’17 EBIT rose 16% y/y and 2% above our estimate to ₦39.3 billion.
Further helped by much lower FX losses in H1’17, net finance expense moderated 37% y/y in H1’17 to ₦5.3 billion, albeit this figure came in 45% higher than our estimate as we had expected the more stable FX environment in Q2’17 to keep a lid on FX losses.
Given this, H1’17 PBT fell 3% below our estimate, but 33% higher y/y. Overall, with a 30% tax rate (Vetiva: 32%), PAT for the half year came exactly in line with our expectation at ₦23.8 billion – implying a 25% y/y rise.
FY’17 estimates little changed, TP revised to ₦120.72, SELL
Whilst revenue growth fell below our expectation in Q2’17, we are optimistic for better volume performance in the latter part of the year and as such retain our FY’17 revenue estimate at ₦346 billion.
Also, with gross margin consistently bettering our estimate, we revise FY’17 gross margin estimate slightly higher to 44.5% (Previous: 44.0%).
Following an upward revision to both our Other income and net finance expense estimates, our FY’17 EPS is revised 2% higher to ₦5.69 (Previous: ₦5.58).
We revise our 12-month Target Price to ₦120.72 (Previous: ₦115.40).