Global stock markets may be battling to survive the prolonged market selloffs in the last 3 months but for Nigerian Breweries shareholders, the stock price selloff is now almost 3 years old.
Since peaking at N191 in Q2 2017, NB has seen its share price consistently decline, falling to a multi-year low of NGN25.50 as at the end of Q1 2020. The 3 years old selloff cost the brewery giant its priced place in the elite trillion-naira market cap club as the market valuation declined from N1.5 trillion in Q2 2017 to N204 billion in Q1 2020, losing as much as N1.3 trillion in market valuation over the last 7 quarters.
“While the deteriorating financial performance of the firm holds some blame for the prolonged selloff, the depth and speed of the selloff suggest that the stock may be oversold,” said Obinna Uzoma, chief economist at EUA Intelligence.
The last time Nigerian Breweries Plc posted a growth in revenue was in 2017 when the stock reached its record high price. In FY 2017, revenue growth was around 9.8 percent but declined by 5.8 percent in FY 2018 and 0.43 percent in FY 2019.
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“From the company’s peak price of N191 in 2017, the share price has now declined by around 83 percent as at market close on Friday compared to just 6.2 percent decline in revenue and 51 percent decline in earnings per share over the 3-year period,” Uzoma added. NB shares closed at N32.35 on Friday last week.
The company according to its CEO, Mr Doyer stated that FY 2019 results were impacted adversely by increased excise duty rates despite volume growth and further premiumization. He added that the firm had to increase borrowing to reduce a backlog of foreign payables.
Although some analysts say that the stock may be oversold, it appears the market has been great at forecasting future earnings of the company and repricing its shares appropriately. For example, in 2018, NB shares traded at N138 per share at the start the year but fell to NGN82 per share by year end, representing a 41 percent decline in stock performance which matched the 42 percent decline in Profit after Tax (PAT) the brewery suffered in 2018.
Year to date, NB share prices has declined 41 percent. Whether this price decline is indicative of the potential drop in earnings is unknown but analysts say it’s not impossible that we see such profit declines from breweries this year considering that we are in an our economy is on the brink of a deep recession, households and businesses are restricted by an extended lockdown, household purchasing power is weaker and a significant cut in household discretionary spending is expected this year. More than enough headwinds to knock any company’s earnings guidance in half
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