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Bargain hunters lift Nigerian Breweries from 18-year low

Nigerian Breweries

Shares of Nigeria’s largest brewer, NB Plc, got a fleeting relief Tuesday after bargain hunters who saw value helped the stock recover from an 18-year low.

NB shares have underperformed the All Share Index this year and traded at N75.13 earlier this week, the lowest in 18 years.

This has made value investors to take position in anticipation of a rebound in share price, which gained 4 percent to close at N78, Tueday.

The board of Directors will hold its board meeting on February 13th and among the issues to be deliberated on is the consideration and approval of the Audited Financial statements of the company, as well as a proposal for the payment of dividend.

Interestingly, the fourth quarter which is the yuletide period provided a good opportunity for the company to make higher sales to reverse its fortunes. Perhaps the full year results so eagerly awaited by investors will put smiles on their faces once again.

Shareholders of the company are hopeful that the makers of Star and Heineken’s profit will be large enough to pay dividend, although the company’s third quarter period ending last September saw the company making profits, they were not as big as the corresponding period in 2017, thus, calling to question the brewer’s ability to take on emerging ‘beer war’ coupled with the dwindling purchasing power of consumers.

The Nigerian brewery market has got increasingly interesting in recent times; particularly considering the intensifying competition in that space, occasioned by AB-InBev’s integration of its Nigerian subsidiaries, capacity expansion and introduction of new products has further heightened competition in the brewery landscape through attractive price points.

In the second quarter 2018, NB adopted price increases on some of its products Star Radler, Life, Goldberg ahead of the new tax regime introduced by the Federal Government; however, this was later reversed towards the end of June, given that International Breweries, a major competitor left prices unchanged for its lager products Trophy and Hero.

Analyst say the increase in the prices of NB Plc’s major brands ignited a drift of taste by consumers given the fact that the economic downturn has eaten greatly into consumer’s purchasing power, thereby affecting their spending coupled with the high prevalence of cheap substitutes.

In the nine months ended September 2018, NB’s revenue fell 5.6 percent to N255 billion in September 2018 from N270.2 billion corresponding period in 2017. Although the company managed to have marginal control of Cost of Goods Sold, gross profit still slipped by 11.4 percent to N94.72 billion from N106.86 billion, shrinking gross profit margin to 37.14 per cent from 40 per cent.

The company had a hard time trying to temper operating costs, which vaulted leading to lower operating results of N27.74 billion from N42.3 billion. The ultimate effect was a slice of operating margin to 11 per cent from 15.7 percent, indicating that the company is finding it difficult to rein in costs of production.

So, it is no surprise that pre-tax profits were down a whopping 34.7 per cent to N22.5 billion from N34.4 billion with resultant lower pretax profit margin of 8.8 per cent from 12.7 per cent. The company’s bottom line bled from the above by shrinking 38.4 per cent below the former performance to N14.8 billion from N24 billion.

To protect market share, Nigeria’s top brewers have embarked on creative advertising and promotional activities. In sales and advertising Nigerian Breweries spent about N17.5 billion in the first 9 months of 2018 up from N16.3 billion reported a year earlier, the highest by any brewer in the country. Most Nigerian Brewers do not break down the advertising spend in their financial statement, so it is difficult to determine how much of their spending went to digital advertising, outdoor, print.

In a report bt Investment Firm, CardinalStone, NB will strive to retain its overall market share by more aggressive marketing to enhance visibility of its products.

“We have adjusted our model for these changes and revised our target price downwards to N100.05, which represents an upside of 13.4% based on its last close price of N88.20. Therefore, we recommend a HOLD. On a relative basis, Nigerian Breweries currently trades at a discount to peers; forward P/E of 20.53x vs. 22.12x for Bloomberg Middle East and Africa Peers” the report noted.



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