Early earnings results released on the site of the Nigerian Stock Exchange (NSE) showed Seven-Up Bottling Company plc leapfrogging other firms operating in the Fast Moving Consumable Goods (FMCG) sector.
The Nigerian bottling company recorded a 8.88 percent growth in sales and 16.11 percent rise in profit in the third quarter to December 2014 (Q3 2014) as it continues to trim costs, evidenced in its 62.11 percent cost of sales margin. This makes the company our top pick.
Millers did not fare well in the latest earnings update because they had most of their profits swallowed by high input costs, leaving very slim profit margins (see table).
Also putting these firms in a precarious position is the insurgency in the North part the country that has dented the purchasing power of consumers.
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Our analysis revealed that Northern Nigeria Flour Mills plc (NNFM), Dangote Flour Mills (DFM) and Flour Mills Nigeria plc recorded cost of sales margins of 96.19 percent, 89.11 percent and 90.86 percent, respectively, which is the highest in the sector.
Consequently, NNFM and FMN were left with low net margins of 1.94 percent and 1.34 percent, respectively, while DFM recorded loss in the review period.
Brewers did not fare much better at the bottom-line as Guinness Nigeria plc (GN) and International Breweries Nigeria plc (IBN) recorded a 32.20 percent and 24.43 percent reduction in profit. GN had sales grow slightly by 4.75 percent while IBN recorded a double digit growth of 13.02 percent in sales.
We attribute the sluggish growth of brewers to security challenges in the North part of the region and fluctuation in naira that is driving costs, as barley which makes up 40 percent of material components used in the manufacture of beer is imported.
We see improved disposable income and the country’s demographic dividend as major future growth drivers for brewers.
PATRICK ATUANYA & BALA AUGIE
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