INTBREW: Slight Upwards Revisions to Consensus Estimates Expected as PAT Advances by 90%


Wednesday, May 11, 2016 10:18AM/FBNQuest Research

Event: International Breweries reports Q4 2016 (end-Mar) results

Implications: Slight upward revisions to consensus estimates expected

Positives: PBT and PAT advanced by 120% y/y and 90% y/y respectively

Negatives: No obvious negatives

Late yesterday, the NSE published International Breweries’ Q4 2016 (end-Mar) results. While sales of N6.8bn were up 28% y/y, PBT and PAT grew much faster, by 120% y/y and 90% y/y to N1.3bn and N943m respectively. Although operating expenses grew by 69% y/y, this was not enough to offset the strong sales growth and a gross margin expansion of 625bps y/y to 35.5%.

These positives led to the significant improvement in PBT y/y. However, PAT growth was held back due to a higher tax rate of 25% (versus 13% in Q4 2015). Sequentially, while sales grew by 8% q/q, PBT and PAT both declined by -11% q/q and -6% q/q respectively due to a combination of a gross margin contraction of -1,519bps q/q and an 89% q/q rise in net interest expense. On a full year basis, sales, PBT and PAT all grew, by 13% y/y, 30% y/y and 36% y/y respectively.

Compared with our estimates, while Q4 sales were ahead by 25%, PBT and PAT were ahead by 126% on average. Despite gross margins coming in lower than we had expected, the variance in PBT (versus our estimates) was mainly due to the stronger-than-expected sales and a positive surprise on the operating expenses line.

Full-year sales were in line with consensus estimates of N23.0bn while PBT was ahead consensus estimate of N3.3bn by 12%.

On the y/y gross margin expansion, we believe this was mainly due to base effects. In Q4 2015, International Breweries reported a gross margin of 23.5% (down -1,221bps), which was significantly lower than normal.

International Breweries declared a dividend of 35kobo per share (up 40% y/y), which works out to a payout ratio of 43% and dividend yield of 2%.

Year-to-date, International Breweries shares have gained 25%, significantly outperforming the broad index which has shed -10.5% and rivals, Nigerian Breweries (-14%) and Guinness Nigeria (-21%). From current levels, the shares are trading (on our published estimates) on a 2017E P/E multiple of 28.7x for a 6.4% y/y 2018E EPS growth.

We expect a modest positive reaction by the market on the back of the results.

We rate the stock Neutral. Our estimates are under review.

International Breweries’ Q4 2016 (end Mar) results vs. FBNQuest estimates

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