NB PLC: emergence of a new competitor, one competition too many?

Proshare

Friday, December 19, 2014 12:00 PM / GTI Research

Nigeria Breweries (‘’NB’’ or the ‘’Company’’) released its unaudited 9M -2014 result for the period ended September, 20 2014, on the 22nd of October 2014.  The Company reported a 2.3% rise in revenue to N194.74billion ($1.18B) from N190.30billion ($1.15B) YoY, while net income improved by 11.3% to N29.82billion ($180.76M) from N26.80billion ($162.43M) YoY.  

On a quarter on quarter analysis, revenue was up by 5.1% to N72.52billion ($439.51M) in Q2 2014 from N68.97billion ($418.04M) in Q1 2014, but declined by 26.6% to N53.24billion ($322.69M) in Q3 2014.  Net income on the other hand rose by 37.3% to N13.81billion ($83.71M) in Q2 2014 from N10.06billion ($60.97M) in Q1 2014, but crashed by 57% to N5.95billion ($36.09M) in Q3 2014.

The Company recorded its lowest sales volume in the third quarter which translated to the weak net income performance. However, the 17% reduction in distribution/administrative and other expenses line item in Q3 2014 as well as the stronger revenue growth especially in Q2 2014 ensured that the Company managed a flat revenue growth YoY and an 11% improvement in PAT in the 9M 2014 cumulative performance. We note the steady reduction in the revenue growth from beginning of the year to date (Q1 2014 6.8%, H1 2014 5.7% & 9M 2014 2.3%) and we adduce this trend to the increased competition especially from the emerging low end ‘’Gin/ Spirit’’ market which is increasingly gaining prominence especially among the middle and low income earners. It is our opinion that this emerging market has a huge potential for growth considering that it is packaged in very affordable sizes which has attracted more demand.

The Company’s major shareholder, Heineken N.V has proposed its merger with Consolidated Breweries PLC (another subsidiary of Heineken).  The merger is expected to be concluded around January 2015.  We expect that this merger will boost the Company’s chances of penetrating the lower segment of the brewery market.

Going forward, we are moderately optimistic that the Company’s merger with consolidated breweries will boost revenue especially in 2015 financial year. We are however still concerned about the rising threat from the emerging low end gin/spirit market, a threat that one of Nigeria Breweries’ biggest competitors in Nigeria has acknowledged and has ventured into.  It is our opinion that Nigeria Breweries needs to develop a strategy that goes beyond being dominant as Nigeria’s largest brewer of premium beer and delve into this new market   with high potential for growth.


Revenue & PAT experienced a seesaw effect in the first three quarters on a quarter on quarter analysis


Over the past 5years, revenue growth was strongest in 2011, but has continued to decline since then, PBT on the contrary rebounded from its lowest point of 1% in 2012 to 12% in 2013


NB’s financial liabilities declined dramatically in 2013, bringing debt-equity to 8%


ROE has declined consistently over the past 3years


Over the past 5years, revenue has managed a 10%growth (CAGR) while admin expenses has risen by 15% over the same period.  Note: finance cost CAGR was calculated over 3years.

All profitability margins recorded have been pretty consistent over the past 4years with marginal movements up &down




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