Nigerian Breweries – Mild Earnings upswing hinged on increased volume roll-out

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Despite the price increases that had been implemented at the start of the year to combat the effect of increasing inflation, excise duties and to cover the increase in value-added taxes, Nigerian Breweries suffered through a troubled first half, where Revenue plunged 18% y/y due to significantly weaker demand and volumes.

However, as social interaction levels increased meaningfully in Q3, we expect improved volumes and demand to spur a 2% y/y recovery in Q3’20 Revenue, taking 9M’20 figure to ₦218.7 billion, however still a 7% downgrade from 9M’19.

Source: Company Fillings, Vetiva Research Insider Dealing: Heineken Brouwerijen B.V acquires additional 6,894,409 units of Nigerian Breweries shares

Although costs remain elevated across the board in terms of raw materials (both imports and locally sourced inputs) and energy costs, Nigerian Breweries’ new distribution strategy should also come in handy in cushioning the effect on margins. Thus, we expect the operating margin to remain stable at 8% in the nine-month period.

We retain our expectation of a jump in finance costs for the year. However, we expect a 37% q/q decrease in interest expense for the quarter.

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All in, we estimate a 4x q/q rise in PAT to ₦0.4 billion in Q3.

Nigerian Breweries - Mild Earnings upswing hinged on increased volume roll-out Brandspurng
Source: Company Fillings, Vetiva Research

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