Shares of Nigerian Breweries, the largest brewing company in Nigeria on Monday slumped by 9.64 percent after the company recorded its first revenue decline in the last five (5) years.
The decline which came in the first trading session after the postponement of the general elections by INEC was attributed to the company’s weak financial performance in full year 2018.
“The decline in NB share performance is largely a mirror of investor’s reaction to company’s fundamentals which was below market expectation,” Wale Okunrinboye, Investment Analyst at Sigma Pension Ltd.
Against consensus analysts’ expectations according to data gotten from the Bloomberg terminal, top line growth came in at N324.4 billion, decline by 5.9 percent year-on-year in 2018, a +0.16 deviation from analysts’ estimate of N323.85 billion.
Financial position for the period ended full year 2018 also show a decline in profit after tax (PAT) by 41.2 percent to N19.4 billion in 2018 against N33 billion recorded in 2017. This drop was largely driven by steep decline in other income coupled with a decrease in revenue and a marginal increase in marketing and administrative expenses.
This is however a deviation by -13.24 percent from analysts forecast of N22.39 billion in PAT for the period.
Revenue trend of NB shows that in the last five years, 2018 revenue position is the first decline ever recorded as the company has recorded consistent growth in revenue between 2014 and 2017.
Gbolahan Ologunro, analyst at CSL Stockbrokers explained, “The decline in revenue is on the backdrop of intensified competition in the brewery industry triggered by the merger between Interfact, Pabod and International breweries.”
In addition to the above point, weak consumer spending experienced in 2018 is seen to have contributed to decline revenue of NB. “Q4 used to be a strong quarter for the brewery industry but Guinness financial proofed low demand for beer due to weak spending of consumers.” Ologunro added.
Okunrinboye explained that the entry of International Breweries into the beer industry put more pressure on Nigerian Breweries as the Nigerian Subsidiary of Belgium-based Anheuser-Busch InBev, set out to increase market shares through competitive offerings.
In Q2 2018, International Breweries’ decision to maintain price on its larger products despite a new tax regime introduced by the Federal Government forced Nigerian Breweries to revert price increase on some of its products like Star Radler and Goldberg.
Meanwhile the steep decline in other income of NB was affected by the absence of income from claims on insurance for the period. Against income claims on insurance in 2017 of N1.57 billion, other income declined significantly by 60.4 percent to N885.3 million from N2.23 billion in 2017.
Furthermore, year-to-date (YTD) analysis revealed that stock price of NB is down 12.3 percent after it closed on Monday at N75.00, a 9.64 percent decline from N83 market close as at Friday.
In line with market reactions to the just postponed general election on Saturday which has led to negative reactions to the overall equity market, shareholders of NB however refuse to be motivated by dividend declaration by the company.
Nigerian Breweries Plc on Monday announced to pay a final dividend of N14.6 billion which is N1.83 per ordinary share of 50 Kobo each for the period ended December 31, 2018. This is however despite unimpressive result released by the beer company for the year ended 2018.
“With a dividend yield of 2.2 percent, the declaration of N1.83 per share is below consensus expectation of N3.’’ Okunrinboye said.
“I don’t think we would see investors’ moving strongly towards the stock as there is already a negative sentiment.’’
According to report, dividend payment by the firm is subject to the deduction of the appropriate withholding tax and approval at the Annual General Meeting of the Company which is slated for Friday, May 17, 2019.
NB also further explained that only shareholders whose names appear in the Register of Members as at the close of business on Wednesday, March 6, 2019, will be paid. Register of Members is expected to be closed from Thursday, March 7, 2019, to Wednesday, March 13, 2019.
“I see investors reacting negatively to the financial position of Nigeria Breweries which may lead to NB share dumping.” Ologunro told BusinessDay. He further reiterated that, “investors are more interested in the sustainability of dividend payment; the decline in revenue and profit of NB is a threat to this reality.”
Shares of Nigerian Breweries earlier in February hit the lowest in 18 years at N74 per share on stiff competition among beer makers and the declining purchasing power of consumers who sought cheaper alternatives to products of the brewery.
The down trading nature of consumers, going for more cheaper beer alternatives coupled with intense competition in the industry are factors that may pressure down revenue and profit of NB.
The drop in revenue and profit has been seen as a likely resultant effect of stiffer competition from other brewers in the period under review. Amongst others, Ghana exported 580,000 cartons of Alomo bitters in Nigeria in 2018 as demand for product increases.
NB’s net revenue was down 5.8 percent to N324.38 billion on a 21.4 percent increase in exercise duty expense to N25.8 billion. While revenue from exported products increased significantly by 57 percent to N190.4 million, NB’s revenue from Nigeria which constitutes about 99 percent of the group sales declined.
“Going forward I do not see a fundamental shift in NB struggling to grow its revenue, irrespective of the lager segment, we have seen competition abound.” Analyst told BusinessDay.
In Q2 2018, the Brewery experimented with a price raise on some of its products like Star Radler and Goldberg ahead of a new tax regime introduced by the Federal Government but reverted when a major competition left price unchanged for its lager product.
Share of Nigeria Breweries may appear not appealing now according to analysts however with excess capacity of about 40 percent which still remains unutilised coupled with rapid growth in the Nigerian population; prospect in the long term for NB to rebound is high.
David Ibidapo & Segun Adams
