Nigerian Breweries Reports Q4 2017 Results - Gross Margin Fell By 87bps YoY to 41.0%


Friday, February 16, 2018 /12:30 PM / FBNQuest 

Event: Nigerian Breweries reports Q4 2017 results

Implications: Downward revisions to consensus 2018 PBT forecast likely 

Positives: Limited, a 15% y/y reduction in net finance charges

Negatives: Gross margin fell by 87bps y/y to 41.0%

Late yesterday, Nigerian Breweries (NB) published its Q4 2017 results which showed that PAT grew by 9% y/y to N9.0bn despite a marginal (-1% y/y) decline in sales. The single-digit earnings growth was mainly driven by a -15% reduction in net interest expense. However, a lower effective tax rate of 25.9% (vs. 30.1% in Q4 2016) also contributed.. Although gross margin fell by -87bps  y/y to 41%, while other income declined by 12% y/y, the reduction in net interest expense completely offset these negatives and was the major factor behind the PBT growth of a 3% y/y. On a sequential basis sales grew by 22% y/y. However, thanks to base effects in the prior quarter, PBT and  PAT advanced by around 33x q/q and 35x q/q respectively. Compared with our forecasts, sales, PBT and PAT missed by 10%, 23% and 19% respectively. NB’s PBT also came in significantly below consensus 2017 PBT forecast of N52bn.

On a full year basis, sales grew by 10% y/y to N344.6bn. However, PBT and PAT expanded by 18% y/y and 16% y/y respectively to N46.7bn and N33.0bn. Compared with our forecasts, sales missed silghtly (-2.7%) while PBT and PAT missed by 7% and 6% respectively. The management of Nigerian Breweries has proposed a final dividend of N3.13 per share, in line with our N3.08 estimate. The proposed dividend is around 21% higher than the final payout of N2.58 in 2016 and implies a yield of 2.4%. Having paid out an interim dividend of N1.00 per share previously , the total dividend implies a dividend payout ratio of 99.1%.

Pending comments from management, we believe that the weak topline was underpinned by a weaker price / volume mix skewed in favour of value brands. We also believe that higher prices of soft agricultural commodities required by brewers was also likely responsible for the y/y contraction in gross margin. Barley prices increased by around 24% y/y in the final quarter of 2017.

On the back of these results, we expect to see downward revisions to consensus 2018 PBT forecast and a neutral to negative reaction from the market. NB shares have underperformed the index this year. The shares have shed -3% compared with the 11% gain delivered by the index.

We rate the shares Underperform. Our estimates are under review.

 Proshare Nigeria Pvt. Ltd.

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