Thursday, October 22, 2015 11:26AM / FBN Capital Research
Event: Nigerian Breweries reports Q3 2015 results
Implications: Slight downward revisions to consensus 2015 PBT forecast likely
Positives: Sales grew by 19% y/y, gross margin expanded by 229bps to 48.9%
Negatives: PBT declined by 24% y/y due to marked increases in opex and net interest expense
Late yesterday, the NSE published Nigerian Breweries’ (NB) Q3 2015 results which showed that PBT declined by -24% y/y, despite a 19% y/y growth on the topline.
Although gross profit grew by 25% y/y on the back of a 229bps expansion in gross margin to 48.9%, the growth on this line was completely offset by a 47% y/y rise in opex and a 43% y/y increase in net interest expense.
The decline in PBT marks the fifth consecutive quarter of negative growth for NB. Further down the P&L, the decline on the PAT line narrowed to 21% y/y, due to a lower effective tax rate of 28.5% vs. 31.6% in Q3 2014.
However, given that the numbers for Q3 2014 are pre-merger numbers and do not include those of Consolidated Breweries (CB), these comparisons are not exactly like-for-like. On our estimates, adjusting for the impact of CB, we believe that PBT most likely declined by around 8% y/y.
Proforma financials from NB showed that Q3 PAT fell by 9% y/y. Sequentially, sales, PBT and PAT fell by 23% q/q, 60% q/q and 59% q/q respectively. The q/q declines are reflective of seasonally weaker sales in the Q3 quarter.
Compared with our forecasts, although sales beat by 8%, PBT and PAT missed by 31% and 29% respectively due to negative surprises on the opex and net interest expense line.
Nigerian Breweries Q3 2015 results: actual vs. FBN Capital Research estimates (N millions)
Source: NSE, FBN Capital Research estimates
We believe the 19% y/y growth on the topline delivered by NB in Q3 was due to a combination of volume growth and price increases. Given price increases of around 5% implemented towards the end of Q1 2015, we estimate unit volumes grew by close to 14% y/y, driven largely by growth in value brands.
Although higher pricing and the 8% ytd decline in barley prices most likely played a part in the 229bp y/y expansion in gross margin, we do not believe these factors were significant enough to offset fx pressures. As such, we would be looking to management for further clarification.
Consensus 2015 PBT forecast for NB is N61bn. When annualised, NB’s 9M PBT tracks behind this figure by around 8%. As such, we expect to see downward revisions to consensus PBT forecast and a negative reaction from the market. NB shares have underperformed the index ytd.
They are down by -16.5% ytd compared with the -12.9% ytd return delivered by the index. At current levels, Nigerian Breweries shares are trading on a 2015E P/E multiple of 25.4x for 19% EPS growth in 2016E. These compare with the 24.6x 2015E (end-June) P/E multiple for 30% EPS growth (due to weak comparables) that rival Guinness Nigeria is trading on.
We rate NB Neutral. Our estimates are under review.
4. NB Upgrading to neutral on marked sell-off – Aug 26, 2015