Sunday, October 28, 2018 / 06:00 PM /
Nigerian Breweries Plc (NB) 9M’18 results – top
line declined by 6.5% YoY to
N238.1 billion, in line with our
estimate of N244.8 billion (-2.7% deviation). In the same vein,
after-tax earnings dipped significantly by 38.4% YoY to N14.8
billion, underperforming our estimate of N21.4 billion.
Given the unimpressive 9M’18
financial result, the company cut its interim dividend by 40.0% YoY to
This represents a dividend yield of 0.7% on current price of N88.0.
- In Q3’18, NB’s net revenue slumped by 11.2% YoY to
billion. According to the parent company, Heineken, beer volume declined
high-single digit, attributable to increased competitive pressure. We are
not surprised by this development, given INTBREW’s aggressive strategy to
grow volumes in recent times, through expansion and competitive
pricing. In addition, we note the significant impact of higher excise
duty tax (+31.2% YoY) on overall sales.
- Notwithstanding, cost-of-sales declined at a slower pace
(-3.2% YoY)—driving the cost-to-sales ratio to a high of 71.5% (vs. Q2’18:
54.2%, Q1’18: 57.6%, FY’17: 58.3%). In our recent note, Amidst competitive pressures, we mentioned that NB was
a cost leader in the brewery industry, and as such, anticipated that the company
could absorb some costs to retain attractive price points and had projected
an increase in cost-of-sales to 65.0% in Q3’18 (6.5 ppts less than actual
- We note that the company’s gross profit for the period (
billion) was not sufficient to cover its operating expenses of N22.7
billion for the period, which resulted to an operating loss of N3.9
billion. This coupled with net finance cost amounting to N1.2
billion, resulted to a loss-before-tax of N5.1 billion in Q3’18 (vs.
Q3’17 PBT: N400 million).
- However, the company recorded a tax credit of
billion during the quarter, which moderated loss-after-tax to N3.6
billion (vs. Q3’17 PAT: N300 million).
For us, the narrative in the brewery landscape
remains the same. We expect it to be largely shaped by intense rivalry – the
ability of brewers to introduce innovative products at attractive price points
and the extent of INTBREW’s aggressiveness in driving volumes with competitive pricing.
Also, we cannot downplay the impact of the recently introduced specific excise
duty taxes, we believe cost pass-through to consumers will remain limited, as
the intense rivalry makes it rather difficult to raise prices of beer products.
In Q4’18, we expect a slight uptick in volumes
QoQ, given festivities in that period – also, we note that Q4 is traditionally
the best quarter for the brewers. Notwithstanding, we believe NB’s ability to
grow its top line on a YoY basis will be tough, specifically in the mainstream
beer space, given increased supply of beer in the Nigerian market, as well as
limited ability to hike product prices.
on our last review, our target price for the counter is