While analysts have adopted a less cautious stance on the Brewery sector in 2020, they are upbeat that Nigerian Breweries (NB) Plc will deliver solid leadership and earnings.
They expect Nigeria Breweries to stay ahead of the pack, thanks to a price increase in premium brand and capital injection by parent company, Heineken International.
NB, in November 2019,
“This is awelcome
“We note that the price increases are focused mainly at the premium segment, which grew double-digit last year, and according to NB’s parent company, Heineken NV, has been growing double-digit in each of the previous 3 quarters,” said analysts at Cordros Capital
Read also: Low sales, rising competition reduce brewery industry’s profit by N15bn
Beer makers in Africa’s largest economy will face a tough year (2020) as the recent hike in Value added Tax (VAT), hike in excise duty, and the proposed increase in tariff on electricity are expected to keep consumer discretionary spend under pressure.
Also,higher raw material
A myriad of challenges hasn’t damp consumer appetite for liquor as Nigeria led Africa in alcohol per capita consumption as of 2019.
Nigerians were reported to consume around 13.4 liters per capita. The Kingdom of Eswatini was the second leading country with around 9.9 liters per capita alcohol consumption, and South Africa next in rankings, following closely with per capita consumption of around 9.3 liters.
The cumulative net income of the three largest players in the industry- Nigeria Breweries, International Breweries, and Guinness Nigeria- fell by 151 percent to N4.54 billion in September 2019 from N8.48 billion the previous year.
International Breweries and Guinness recorded losses while the management and boards of directors of International Breweries plans to raise capital via a rights issue to help reduce the company’s huge debt.
The valuations of firms are very expensive, making them less attractive in the event that investors decide to take advantage cheap valuations.
Nigerian Breweries, a firm that controls 56 percent of the volume market share, have seen shares underperformed the NSE All-Share Index, declining by 4.92 percent YTD, primarily on weaker earnings due to the challenging operating environment. It has a price to earnings ratio of 26.17 times.
International Breweries shares underperform the NSE All-Share Index, declining 2.11 percent.
Premium brands otherwise known as “Premiumisation” hs been the most important contributor to growth algorithm, driven by urbanization and a growing
Heineken NV in it’s recent ‘What’s Brewing’ investor seminar, highlighted that premium beer has an expected medium-term volume CAGR of c.3 percent in developing markets, according to the report by Cordros Capital.
The spirits segment has been a major driver of GUINNESS’ sales as the product continues to thrive amidst the challenging environment.
Spirits sales make up c.17 percent-18 percent of revenue, with
“Similar to the brewery space, Diageo brands now have the third-largest share of the spirits markets. While this is positive on the whole, we note that spirits growth has not been sufficient to cover the decline in the lager and Research and Development,” said analysts at Cordros Capital Ltd.
Analysts at Cordros Capital expect Guinness to continue to lose market share in the brewery space while suffering persisting margin deterioration.
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