International Breweries Q3 2019 Results Review: Outlook For Post-Rights Earnings Still Bearish


Friday, November 08, 2019   /09:45 AM  / By FBNQuest Research / Header Image Credit: Guardian NG


Deep cuts to TP and earnings forecasts

International Breweries (IB) in Q3 recorded its first y/y net sales decline (-5%) since the 2017 merger, and a record pre-tax loss of -N13.6bn. In contrast to previous quarters which showed strong double-digit growth, Q3 volumes only grew by low single digits. This slowdown was caused by the wearing off of base effects from the Sagamu plant expansion concluded in June last year.


In monetary terms, sales were largely impacted by the 17% y/y excise tax increase in June. More broadly, the sustained deterioration in IB's earnings were also driven by a ramp up in promotions, financing cost and depreciation charges, primarily on account of the added brewing capacity. Addressing these pressure points, management during a recent discussion, indicated its willingness to raise prices in similar measures planned by competitors.


The company is also proposing a capital raise of N165bn - via a rights issue - to drive borrowing costs lower. However, the sales upside from price increases may be limited in that adjustments will mostly be applied to the premium segment, where IB has the least market share. For the rights, assuming a 100% take up, our 2019E-21E net interest expense forecasts will see a reduction of around -55% on average on the back of a deleveraged balance sheet. That said, ex-price increases, post-rights earnings for our forecast years are still in negative territory.


Essentially, our forecast changes have not yet taken into account the proposed rights issue and price increases. Following the much worse-than-forecast line items for 9M 2019, we have made significant cuts to our 2019-21E PBT forecasts. The effect of these cuts is a -41% reduction of our price target to N9.1. Year-to-date, IB shares have lost -66%, underperforming the broad market by -50%. Our new price target implies a downside potential of -11%. We therefore retain our Underperform rating.


Q3 pretax loss tripled y/y to -N13.6bn

IB’s pretax loss for Q3 2019 was caused by a y/y deterioration of all the key line items. The biggest driver responsible for the loss was a -975bp squeeze in gross margin to 28%. opex and net interest expense increased by 46% and 2.2x to N15.8bn and N6.1bn respectively. Sequentially, gross margin contracted by -423bps q/q while opex and net interest expense increased by 12% q/q and 3.1x q/q respectively.


As such, the Q3 pretax loss was more than double -N5.2bn posted in Q2. Relative to our forecasts, gross margin was -631bps narrower than forecast while opex and net interest expense missed our forecasts by 32% and 66% respectively. The pretax loss was therefore quadruple our forecast of -N3.4bn.



Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

Related News

  1. International Breweries Plc: Poor Performance Extends Into Q3 2019
  2.  INTBREW Declares N16.445bn Loss in Q3 2019 Results,(SP:N12.60k)
  3. INTBREW Shareholders Approve Proposed Rights Issue; Price Put At N9.00
  4. INTBREW Board Approves A Proposal For A Rights Issue As A Form of Capital Raising
  5. The Board Of INTBREW Appoints Tolulope Adedeji As A Director
  6. INTBREW Declares N6.84m Loss in Q2 2019 Results,(SP:N12.50k)
  7. INTBREW Declares N3.98bn Loss in Q1 2019 Results,(SP:N17.05k)
  8. INTBREW Declares N3.87bn Loss in 2018 Audited Results,(SP:N18.30k)
  9. INTBREW Appoints Olutoyin Mobisola Odulate as an Independent Non- Executive Director
  10. INTBREW Announces Delay in Filing of the Company’s 2018 Audited Financial Statements
  11. Nigerian Brewers - NB Tops on EPS, GUINNESS Tops on PE Ratio As INTBREW Records Negative ROE
  12. INTBREW Appoints Mr. Richard Rivett-Carnac as a Non-Executive Director of the Company
  13. INTBREW Appoints a New Director
  14. INTBREW Declares N7.137bn Loss in Q3 2018 Results,(SP:N30.20k)
  15. INTBREW Appoints Mr. Andrew Scott Murray as a Non-Executive Director

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
Related News