| Stock & Analyst Updates |    2114 VIEWS  |
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Wednesday, May 06,
2020 / 10:08 AM / by FBNQuest Research / Header Image
Credit: NBPLC
-22% cut to average EPS estimates over the 2020-22E
period
We have cut our target price for Nigerian Breweries
(NB) by -30% to N40.5 on the back of a 150bp increase in our equity risk
premium assumption to 7.5% and downward adjustments to our earnings forecasts.
NB's Q1 PBT missed our forecast of N10.7bn by -23%, largely due to -7.1% and
7.8% negative surprises in sales and opex. As such, our 2020-22E EPS forecasts
are lower by an average of -22%.
These new forecasts have also taken into account a
potential slump in demand in Q2 and Q3 as a result of the virus outbreak, and
higher input costs and fx losses resulting from the weaker exchange rate. We
also remain mindful of the strong competitive headwinds in the beer market.
Indeed, NB's ability to pass on higher input costs is likely to be constrained
by sustained price competition from International Breweries. A positive
adjustment made to our forecasts is a -10% average reduction to 2020-22E
net interest expense forecasts. Early this year, NB raised N53.8bn via a
commercial paper at an average yield of 6.2%, which compares favourably to the
13.6% average yield for the papers it issued last year.
We therefore expect a decline in borrowing costs over
the coming quarters. NB shares are currently trading on a 2020E P/E multiple of
19.3x for a 2020-22E average EPS growth of 5%. Year-to-date, NB shares have
sold off by -49% and underperformed the broad market index by -35%.
Consequently, our new price target implies a considerable upside potential of
35% from current levels. We however retain our Underperform rating despite the
upside, given the absence of a near-to-medium term catalyst for a rally in the
shares.
Q1 PBT down -28% y/y
Sales were flattish y/y in Q1, whereas gross margin
narrowed by -19bps y/y to 41.9%. Bottom-line was largely impacted by a 14% y/y
increase in opex to N24.1bn. As such PBT for the quarter declined by -28% y/y
to N8.3bn. On a sequential basis, sales declined by -5% q/q whereas gross
margin expanded by 174bps q/q. Opex and net interest expense declined by -5%
q/q and -31% q/q respectively while other income was down -31% q/q. PBT
therefore increased by 34% q/q. Relative to our forecasts, PBT missed by -23%
driven by negative surprises in sales (-7%) and opex (8%).
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