Nigerian Breweries H1’20 – Revenue strain persists amid pandemic pressures

Must Read

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...

Audi electrifies FC Bayern Munich (Photos)

Enabled by the partnership with Audi: FC Bayern Munich is the first international football club to drive using electric...

Naira Further Depreciates against the USD at the BDC, Parallel Markets

In the just concluded week, Naira weakened further against the USD at the Bureau De Change and the parallel...
- Advertisement -

Severe revenue drop tames H1 performance

Nigerian Breweries recently released its Q2’20 results, reporting a 17.5% q/q slump in topline to ₦68.7 billion. Despite a better than expected performance amid a significantly tougher operating environment, (Vetiva estimate: ₦43.5 billion, -47.8% q/q) the weaker Q2 performance took H1’20 Revenue to ₦151.9 billion, a 10.8% step-down from its H1’19 performance.

We believe that in the quarter under review, the implementation of lockdown measures following the onset of the pandemic combined with pressured income levels slowed down beer consumption drastically.

Furthermore, post-lockdown, social distancing has ensured that this trend of reduced beer volumes remained.

Taking into consideration that the phased increases in excise duty have ended, with the last increment in July 2019, the company should see some respite with respect to the impact on Net Revenue this year.

However, despite the topline beat, we still maintain that the company’s revenue strength remains compromised and expect that the line item would come in at ₦292.7 billion, a 9.4% y/y decline, owing to depressed income levels and the impact of social distancing measures on alcohol consumption.

Cost containment measures suppress opex growth

- Advertisement -

Succumbing to inflationary pressure as well as elevated costs of importation from increased forex volatility, gross margin declined 3.2ppts y/y to 38.9% in H1’20. Operating profit also declined by 38.5% y/y to ₦14.7 billion in the same period.

In 2019, NB introduced a new distribution strategy that was expected to lift margins by containing middle-men costs. Although marketing and distribution cost has been significantly contained to ₦34.3 billion (-10.0% y/y) for the half-year, this gain did not translate to improved operating margins due to the substantial pressure on the top line.

Read Also:  Lagos Ranks Sixth Cheapest City in the World – Economist Survey

Further down the line, finance costs grew 29.5% to ₦6.8 billion following several commercial paper issuances as the company refinanced loans partly to take advantage of current favourable rates and partly to pay down its foreign currency loans.

We expect this repositioning to prove favourable to the company as we anticipate further FX adjustments in the near term. All in, the bottom line for the company took a very drastic dive in Q2’20 (-98.5% q/q) to ₦0.08 billion dragging PAT for the half-year down 58.0% to ₦5.6 billion.

Earnings estimate revised on improved revenue expectation

- Advertisement -

We adjust our full-year estimates for the cost of sales to reflect the H1 run rate, forecasting a 17.0% drop in gross profit to ₦108.9 billion while adjusting operating expenses to account for increased energy costs.

On the other hand, the company’s debt holding has seen a 1.5x increase since the beginning of the year, majorly through short-term debt. Thus, we expect to see more commercial paper refinancing as the short-term debt obligations become due, as well as a 9.4% y/y jump in finance costs to ₦13.2 billion.

Read Also:  Breweries in battle to increase beer market share

We project a PAT of ₦12.8 billion for FY’20 (-20.8% y/y). We value NB at ₦43.45 and revise our recommendation to a BUY.

Nigerian Breweries H1'20 - Revenue strain persists amid pandemic pressures

- Advertisement -

VETIVA RESEARCH

- Advertisement -
Nigerian Breweries H1'20 - Revenue strain persists amid pandemic pressures - Brand SpurNigerian Breweries H1'20 - Revenue strain persists amid pandemic pressures - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Nigerian Breweries H1'20 - Revenue strain persists amid pandemic pressures - Brand SpurNigerian Breweries H1'20 - Revenue strain persists amid pandemic pressures - Brand Spur

Latest News

Polaris Bank Appoints Segun Opeke as Executive Director

Polaris Bank Limited has announced the appointment of Mr. Segun Opeke as an Executive Director of the Bank by...

Nosir Releases the New Music Project, ‘My Episode’

The new record features 10 hip-hop tracks that admit his rap prowess. 20 September 2020 - Nosir, rap artist and founder of Spade Gospel...

Mega deals as Konga Freedom Sales goes live today

All is set for the 2020 edition of the Konga Freedom Sales, an annual promotion by the foremost composite e-Commerce giant targeted at celebrating...

Audi electrifies FC Bayern Munich (Photos)

Enabled by the partnership with Audi: FC Bayern Munich is the first international football club to drive using electric power. The stars of the...

Naira Further Depreciates against the USD at the BDC, Parallel Markets

In the just concluded week, Naira weakened further against the USD at the Bureau De Change and the parallel (“black”) market by 2.70% and...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Nigerian Breweries H1'20 - Revenue strain persists amid pandemic pressures - Brand SpurNigerian Breweries H1'20 - Revenue strain persists amid pandemic pressures - Brand Spur