Weak beer volume by Nigeria Breweries remains a drag on EPS growth


Wednesday, October 23, 2013 3:34 PM / Chapel Hill Denham


Nigerian Breweries Plc (Rating: HOLD, TP: N160.92)


Nigerian Breweries Plc (NB) released its 9M-13 results today 23 October, 2013.

·       Reported EPS (9M-13): N3.54, +6.2% yoy

·       Chapel Hill Denham (FY-13E): N6.00, +19.3% yoy

·       Bloomberg Consensus (FY-13E): N5.58, +10.9% yoy


Weak beer volume remains a drag on EPS growth

1. Price increase drove sales growth as volume dropped. Sales grew by 5.3% yoy in 9M-13 to N190.3bn, behind our FY-13E expectation of 13.5% yoy, underpinned by beer price increase of 6.0% yoy as volumes were slightly down by 0.7% yoy (our estimates). The beer volume recovery seen in Q2-13 was short-lived as sales dropped by 18.4% qoq in Q3-13, driven by volume decline as prices were relatively stable during the period. We attribute the volume decline in Q3-13 to a weak demand for mainstream beer brands like Star and Gulder, given that Heineken, the premium beer brand, saw some volume growth.


2. Profit margins were relatively stable. NB’s gross margin was fairly stable at 48.5% in 9M-13 (48.6% in 9M-12), on the back of relatively stable soft commodity prices, in our view. Operating profit margin was however weakened to 21.9% by increased operating expenses that rose to 26.6% of sales vs. 25.2% in 9M-12. Net interest expense was down by 16.3% yoy to N5.3bn in 9M-13 from N6.3bn in 9M-12 as gross debt moderated downwards by 6.8% yoy to N55.8bn from N59.9bn in 9M-12. The lower interest expense combined with a lower effective tax rate of 30.4% (32.1% in 9M-12), supported a stable net profit margin of 14.1% in 9M-13 (14.0% in 9M-12).


3. Our earnings forecast, target price (N160.92), and HOLD rating on NB are currently under review. The market’s reaction to the results was slightly negative as the stock’s share price dropped by 1.42% to N173.50 after the publication of the results. NB  is trading on a CY-14E P/E of 26.0x and EV/EBITDA of 17.4x vs. our consumer coverage CY-14E average P/E and EV/EBITDA of 24.0x and 15.1x respectively.


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