NIGERIAN BREWERIES PLC: Expected Rebound in Q4 Seals FY’17

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  • FY’17 revenue up 10% y/y, in line with Vetiva Estimate
  • Operating profit margin recovery supports earnings in Q4
  • FY’17 PAT prints 16% higher y/y; ₦3.13 final dividend proposed
  • Earnings estimates revised lower, TP revised to ₦149.36

Seasonal boost in Q4 supports 10% y/y revenue growth

A significant improvement from the dismal numbers reported in Q3’17, Nigerian Breweries released its FY’17 financial results showing a much-expected recovery across most line items in the Q4’17 period. Top and bottom line came in 10% and 16% higher y/y respectively, both printing in line with Vetiva’s estimate. Stronger demand for the brewer’s products during the festive season spurred a 22% q/q growth in topline to ₦90 billion – contributing 26% to total FY revenue. According to Management, FY’17 revenue growth was solely driven by pricing benefits as the weak macroeconomic environment continued to take a toll on demand, with beer volumes decreasing mid-single digit. That said, the management noted slight improvement in consumer sentiment in the second half of the year, with value
brands still outperforming the portfolio.

Lower finance charges support earnings as operating margins weaken

Despite moderating inflation (Dec 2016: 18.6% vs. Dec 2017: 15.4%) and relatively stable currency, NB struggled to contain costs – particularly in the second half of the year. Though operating profit margin improved to 16% in Q4’17 (from the 4% slump in Q3’17), the figure remained below the 21% margin recorded in H1’17. NB has stated that the impact of double digit inflation, as well as mild naira depreciation against the euro, continues to pressure margins. Overall, despite a 73bps contraction in FY’17 operating profit margin, EBIT rose 8% y/y to ₦57 billion – 2% below our estimate. FY’17 earnings was however boosted by a 21% y/y decline in net finance expense amidst lower foreign exchange losses (₦5.0 billion vs ₦7.6 billion in FY’16). As such, FY’17 PAT came in largely in line with our estimate at ₦33 billion – representing a 16% y/y increase. The Board of Directors declared a final dividend of ₦3.13 (Vetiva: ₦3.06), making a total FY’17 dividend of ₦4.13 – translating to a 3% dividend yield and 100% dividend payout ratio for the third consecutive year.

Earnings estimates little changed, TP revised marginally higher

With results printing much in line with our estimates, we have left our FY’18 earnings estimates largely unchanged. Driven by a sustained recovery in consumer demand and an expected rebound in sales volumes, we forecast a modest 9% y/y revenue growth to ₦376 billion given heightened competitive terrain. We expect the downward inflationary trend, hardline cost cutting strategies and sustained stability in the currency to support a 164bps expansion in operating profit margin in FY’18. The strongest earnings boost for the year is however expected to come from a material moderation in net interest expense – 38% y/y decline expected as FX losses fade. Overall, we forecast a 28% y/y rise in PAT to ₦42.2 billion in FY’18. Having rolled forward our model to FY’22, our 12-Month Target Price is revised marginally higher to ₦149.36 (Previous: ₦146.51).

Nigerian Breweries Plc (NB) is the largest brewer in Nigeria and the second largest listed company on the Nigerian Stock Exchange. Following the merger with Consolidated Breweries effective December 2014, the parent company, Heineken maintains a 52% controlling stake in the larger entity. NB dominates Nigeria’s brewery market with a c.60% market share and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks and ready-to-drink brands

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