International Breweries Q2 2021 Review: Weaker Performance Due to Significant Debt Impairment


Thursday, September 23, 2021 / 03:30 PM / by FBNQuest Research / Header Image Credit: International Breweries 

Increased loss expected in FY '21 following recognition of N11bn in impairments

INTBREW reported a disappointing bottom-line in Q2 '21, after incurring an impairment loss of NGN11.3bn. This impairment arose from fx losses on the company's outstanding USD278m loan that was due for repayment in May '21 and now rolled over by three years. As a result of this unexpected impairment, we have increased Intbrew's loss per share (LPS) estimate for FY'21 by 49% to -NGN0.60 (from -NGN0.40 previously). Away from this, the company, like other brewers, recorded a strong topline of NGN43.0bn in Q2'21, which beat our estimates significantly. AB InBev, the company's parent, on its Q2'21 analyst call noted that consumer demand was very resilient in Nigeria, with volumes expanding by double digits y/y in H1'21.

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On the back of this, we believe volume grew by 12%, compared with average price growth of 18-23% over H1'21. Going forward, we have adjusted our average LPS estimate over '22-23f period slightly to -NGN0.30 (from -NGN0.37 previously) due to expected stronger results in FY'22 and FY'23. For FY'21, we have raised our sales forecast by 14.9% to N167.9bn, aided by the strong Q2'21 sales. We expect core lager brands, such as Budweiser, Trophy, Hero and the recently introduced Trophy stout to maintain their brand equity and preserve market share for Intbrew. We have a new FY'21 gross margin estimate of 19.0% (-249bps vs prior forecast), on the back of higher input costs (commodity prices and food inflation in Nigeria).


Down the P&L, we have raised our opex estimate for FY'21 by 3% to NGN43.6bn. We have also registered a total impairment of NGN13.1bn for FY'21 and raised interest expenses to -NGN2.8bn (+176%) after the extension of the company's USD278m outstanding debt. These drag our Loss before Tax forecast to -NGN27.0bn (from -NGN13.6bn previously) and Loss after Tax (LAT) estimate to -NGN16.2bn (from prior estimate of -NGN10.9bn). These changes imply a new price target of NGN4.9 (from NGN7.5 previously) and implies a potential upside of 1.5% from current levels. We retain our Underperform rating on the stock. Year-to-date, Intbrew shares have lost -26.0% vs. the NSE ASI's -3.5% decline.


Mixed results in Q2'21

Intbrew continued its loss streak in Q2'21, albeit steeper than anticipated due to a significant impairment of -NGN11.3bn in Q2'21. Aside this, turnover grew by 70.2% y/y to NGN43.0bn in Q2'21, ahead of our forecast of NGN30.4bn, with gross margin expanding by +745bps y/y to 20.8%  (from 13.3% in Q2'20). The company recorded interest cost of NGN132m, lower by 89.8% y/y. However, with the rollover in debt maturity, this will turn higher in subsequent quarters.

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