NB: PBT slides as interest charges surges by 113%

Proshare

Thursday, April 23, 2015 5:47 PM / FBN Capital Research

Event
: Nigerian Breweries reports Q1 2015 results

Implications: Potential downward revisions to consensus 2015 forecasts

Positives: Limited; opex declined by 5% y/y to N16.3bn

Negatives: Net interest charges increased by 113% y/y to N1.9bn

This afternoon, Nigerian Breweries (NB) published unconsolidated (ex-Consolidated Breweries [CB]) Q1 2015 results which showed that PAT of N10.1bn came in flattish y/y. Similar to NB’s Q4 results, the published numbers exclude those of the recently acquired CB. As such, our analysis is based on our assumed contribution of NB to our consolidated forecasts. Although sales of N70bn were up marginally by 1.4% y/y, PBT fell slightly by 1.8% y/y to N14.4bn mainly due to a 112.7% increase in net interest expense and a 59% y/y contraction in other income.

The negatives on both lines completely offset a 5.0% y/y contraction in opex and led to the reduction in PBT. Thanks to a 6.8% y/y reduction on the tax line, PAT came in flattish at N10.1bn. Sequentially, while sales fell by 2.4% q/q, PBT and PAT fell by much wider margins of 23.5% q/q and 20.4% q/q respectively. However, the q/q trends are not surprising since the Q4 quarter is seasonally the strongest quarter of the year. Compared with our forecasts, while sales missed by 1.9%, PBT missed by a wider margin of 14.1% due to a combination of factors including the weak topline relative to ours and because our net interest expense was around 36% higher.


Nigerian Breweries Q1 2015 results: actual vs. FBN Capital Research estimates (N millions)



NB’s Q1 results indicate that beer demand is yet to recover from the prevailing headwinds including the tough macro environment and the weak consumer discretionary spend. In addition, down-trading by consumers to cheaper value brands continues to hurt the two largest brewers, NB and Guinness Nigeria, whose flagship brands are in the mainstream and premium segments respectively. While NB now has more exposure to the value brand segment, mainly through acquisitions, we believe that its sales growth was most likely constrained by a volume–price mix, with volumes skewed in favour of the value brands. In a bid to grow volumes and tap into the herbal spirits market, which has seen phenomenal growth since last year, NB recently launched the ACE roots herbal brand to directly compete with the Orijin brand of its closest rival, Guinness Nigeria. Orijin’s marked success has seen it contribute strongly to Guinness’ unit volume and profits. At this point, it is too early to tell how successful Ace’s entry into the market has been.


Consensus 2015 PBT forecast for the consolidated entity (NB and CB) is N72bn. Given that consensus forecast for CB is not available, if we assume that our Consolidated Breweries PBT forecast of around N3.0bn is close to consensus and strip it out from NB’s consensus 2015 PBT forecast, we believe NB’s standalone Q1 PBT came in weaker than the market was expecting. As such, we would expect to see slight downward revisions to consensus full year PBT forecast for NB. Ytd, NB shares have outperformed the index. The shares are down marginally by -0.5% ytd compared with the -7.4% ytd return delivered by the index. At current levels, Nigerian Breweries (including CB) shares are trading on a 2015 P/E multiple of 23.6x for 19% EPS growth in 2016E. We find this more compelling than the 36.1x 2015 (end-June) P/E multiple for 25% EPS growth (due to weak comparables) that rival Guinness Nigeria is trading on.    

 

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