CardinalStone Research
Nigerian Breweries Plc (NB: TP 66.68 – BUY) released its FY’19 audited result, which revealed a 17.1% YoY decline in profit after tax to N16.1 billion (vs. our estimate of N15.5 billion). Although net cash balance also contracted by 56.8% YoY to N6.4 billion, the brewer proposed a final dividend of N1.51 per share, bringing the total dividend to N2.01 (vs. N2.33 in FY’18) with a dividend yield at 3.9%.
Some positives
- Amidst a strong double-digit inflation environment, NB was able to reduce the cost of sales and administrative expenses by 2.9% YoY and 6.9% YoY respectively to N191.8 billion and N19.4 billion apiece. Notably, the moderation in administrative expense reflected declines in employee benefits such as salaries & wages and transportation allocations.
- The company recorded N2.7 billion in origination and reversal of temporary differences that reduced the effective tax rate to 31.0% in FY’19 compared to 33.9% in FY’18.
- Net operating cash flow improved by N8.4 billion YoY to N38.7 billion in FY’19. On this front, we note improvements in the management of working capital (particularly with respect to trade and other receivables).
- Management maintained CAPEX intensity at FY’18 levels of 9.3% in FY’19, highlighting its intention to maintain market dominance.
- NB is in the market to raise N45.0 billion as part of its N100.0 billion Commercial Paper (CP) program. This move is likely to result in a reduction in the effective interest rate in the current financial year given current yield levels.
Some concerns
- Aggressive competition and sin taxes continued to mute growth in revenue in FY’19 (-0.4% YoY at N323.0 billion). FY’19 revenue is largely in line with our forecast of N329.8 billion.
- Marketing and distribution expenses (+10.9% YoY) was pressured by advertising, sales promotion, and transportation. Although this marketing effort supported Q4’19 revenue, its impact was largely muted over the full-year period.
