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Nigerian Breweries: Outlook for the brewer remains positive

Nigerian Breweries

Though the newly introduced Excise Duty rate of N30 per litre has been impacting on the operating profits of Nigerian Breweries Plc, the outlook for the largest brewer still remains positive.

Next week Friday May 17, 2019 the shareholders of the brewing giant will converge in Lagos for its 73rd Annual General Meeting (AGM) where the board and management will review the performance of the company in 2018 and if need be brief the shareholder on its outlook for 2019.

The Board will also be laying before the meeting, the report of the directors and the statement of financial position as at December 31, 2018, together with the income statement for the year ended on that date and the reports of the independent auditors and the audit committee thereon.

Though the share price of Nigerian Breweries may have reasonably underperformed the NSEASI, but analysts still believe that the stock is worth holding.

While the NSEASI Year-to-Date (Ytd) return stood negative at 7.43percent as at May 7, the share price of Nigerian Breweries at N66 was down by -22.8percent ytd.

For the full year 2018 in review, Nigerian Breweries Plc recorded turnover of N324billion compared to N345billion in 2017. Operating profit went down from N57billion to N37billion, due in part to higher Excise Duties and other operating costs. Despite the challenging operating environment, Nigerian Breweries Plc was able to end the year with a profit after tax (PAT) of N19billion, although lower than the N33billion recorded in 2017.

As earlier mentioned, a new Excise Duty rate of N30 per litre was introduced in June 2018, and particularly for Nigerian Breweries, it translated to approximately a 43percent increase from the previous average rate of N21 per litre. It was difficult for Nigerian Breweries to pass on this extra cost to consumers in view of weak purchasing power.

Added, to the already challenging operating environment, the company’s results for the year 2018 therefore reflected the challenges it encountered in 2018. Though, with eyes on the economy, the company may pass on this extra cost to consumers anytime. 

The Board will be recommending to shareholders for approval at the AGM, a total dividend payment of N19.401billion that is N2.43 per share for the 2018 financial year.

The dividend payment recommendation is in line with the company’s dividend policy of 100percent payout of total earnings, which the Board has adopted in the last few years. Recall that in October 2018, the Board had approved the payment of an interim dividend in the sum of N4.798billion that is 60kobo per share. The final dividend would be N14.603billion that is N1.83 per share.

In their April 30 note, United Capital research analysts favoured a Hold rating for Nigerian Breweries shares at current price. The analysts noted “NB published its Q1-19 earnings, showing Gross Revenue grew marginally. However, pressures from the graduated excise duty which most sub-sector players are yet to pass on to final consumers erased the marginal growth in gross revenue. Thus, Net Revenue came in flat at N83.3billion.  Meanwhile, PBT and PAT fell sharply by 24.9percent and 21.3percent year-on-year (y/y) to N11.5billion and N8billion respectively. This was on the back of faster appreciation in overall expenditure incurred during the period”

“Despite intense competitions, NB was able to wrestle away some market share from its competitors in Q1-19 as it grew Gross Revenue by 3.3percent y/y to N91.4billion.  According to the parent company – Heineken N.V. – NB grew beer volume by mid-single digit in Q1-19, adding also that the prior year performance was affected by some destocking. However, NB’s efforts to grow volumes were undermined by the spike in Excise Duty Expense (up 48 percent y/y to N8.1billion) which dragged Net Revenue (up 0.4percent to N83.3billion). Additionally, a faster rise in Cost of Sales (up 7.3percent y/y to N48.2billion) as raw material and consumables cost increased (+8.7percent y/y), further pressured Gross Profit (down 7.8percent y/y). Consequently, Gross margin moderated to 42.1percent from 45.8percent”, United Capital Plc research analysts stated in the report tilted “Cost pressures erode marginal revenue gain”.


Iheanyi Nwachukwu

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