Lower barley prices to maintain NB’s robust performance

Lower prices of barley, an essential brewing input, will likely help maintain Nigerian Breweries’ (NB) robust operating margins and provide support for earnings in the short-term, despite headwinds from a likely devaluation and higher marketing and distribution costs geared towards inducing volume growth, recent report from Exotic Research has said.

Data from the Nigerian Stock Exchange show NB’s revenue as of December 2013, grew 6.3 percent to N268.613 billion, from N252.67 billion in 2012. Profit before tax rose 12 percent to N62.24 billion, from N55.62 billion obtained in 2012. In the same vein, profit after tax rose 13.2 percent to N43.08 billion, from N38.04 billion in 2012. The company also maintained 59 percent market share by the end of 2013 financial year.

“Barley prices are flat year-to-date (ytd), after tumbling 17 percent in 2013. Most of the decline occurred in the third quarter of 2013 (3Q13),’’ notes the report released to BusinessDay.

“Although this will positively impact industry profits, the impact will be disproportionally positive for NB because of its economies of scale,’’ the report states.

The prices of barley have fallen to 200 Euros per ton in February 2014, from 280 Euro per ton obtained in August 2012. Bloomberg graph shows a steady decline from the period in 2012, to the present.

The research firm further expects that beer volume growth will return as the driver of NB’s earnings in the medium term, after two years of relatively weak growth, adding that this would be underpinned by a recovery in consumer spending in 2015, as government spending and private sector investments in the power sector would accelerate between 5 percent and 9 percent in 2015 and 2016, respectively, (after the general elections).

“At this point, we believe that its flagship lager, Star, and other mainstream brands such as Gulder should have returned as core drivers of growth. The recent introduction of a low variant of Star, “Star Lite,” is a positive development and should strengthen recent activations of the Star brand, in our view,’’ it states, adding that regional brands such as Goldberg, Life and non-alcoholic beverages should remain supportive of volume growth.

The firm says to facilitate this growth, the company has adequate brewing capacity following continuing investments over the last three years, estimating brewing capacity of 68 percent for the company in the 2014 financial year.