Tuesday, April 26, 2016 11:32AM/ FBNQuest Research
Maintaining Neutral rating despite 16% increase to our price target
Nigerian Breweries (NB) Q1 2016 results came in slightly better than expected. As such, we have increased our EPS forecasts by around 2% on average over the 2016-17E period. Despite the cuts to our EPS forecasts, our new price target of N123.5 is around 16% higher than our previous price target because we have cut our capex forecasts by an average of 8% over the 2016E-17E period.
The reduction to our capex forecasts is driven by a more subdued outlook for consumer demand due to macro-economic headwinds. On a relative basis, the shares are trading on a 2016E P/E multiple of 19.1x for 14% EPS growth in 2017E. NB shares have underperformed the index this year, shedding -22.0% (vs. -13.5% for the ASI).
Although our new price target implies a potential upside of 16% from current levels, we retain our Neutral rating because we see greater upside potential elsewhere within our coverage universe.
Visible improvements in Q1 2016 after weak Q4; PBT up 4% y/y
NB’s Q1 2016 PAT grew by 4% y/y to N10.5bn. Although sales grew by 11% y/y to N77.6bn, a 55% y/y rise in net interest expense and a 10% y/y increase in opex partially offset the topline growth. The growth in PBT is the first, after six consecutive quarters of y/y declines. Sequentially, sales declined by 2% q/q.
However, PBT and PAT declined by 11-12% q/q due to a gross margin contraction of 481bps q/q to 48.1% and a 19% q/q expansion in net interest expense. Compared with our forecasts, sales, PBT and PAT all beat by between 9 and 10%. In contrast to the Q1 numbers, although Q4 2015 sales grew by 10% y/y, PBT and PAT declined by 10% y/y and 6% y/y to N17.0bn and N11.9bn respectively.
Gaining market share
NB’s Q1 results suggest that it continues to gain market share at the expense of major rival Guinness Nigeria, particularly given that the Q3 (end-March) sales of the latter declined by 33% y/y (vs. +11% y/y for NB).
Although market share data are not really available, we estimate that NB’s market share is now in excess of 70% (vs 67% Q1 2015). Following the slow-down in demand for mainstream brands, we believe that NB’s value brands such as Goldberg, Life and 33 Export lagers were the drivers behind the topline growth.
Beyond Q1, we expect topline growth to hover around the mid-to-high single-digit territory. As such, we forecast 2016E sales and EPS growth of 7% y/y and 19% y/y to N313bn and N5.54 respectively.
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