Culled—Proshare
April 21, 2017/FBNQuest Research
Event: Nigerian Breweries reports Q1 2017 results
Implications: Upward revisions to consensus 2017 PBT forecast expected
Positives: Sales and PBT grew by 18% y/y and 16% y/y respectively
Negatives: Limited; gross margin shrunk by -364bps y/y to 44.4%
Late yesterday Nigerian Breweries (NB) published its Q1 2017 results which showed PBT grew by 16% y/y to N17.4bn. The key drivers behind the solid PBT growth were sales growth of 18% y/y to N91.3bn and a -41% y/y decline in net interest expense. These two positives completely offset a gross margin contraction of -364bps y/y to 44.4% and an 11% y/y spike in opex.
Further down the P&L, an increase in the effective tax rate to 34.3% compared with 30.3% in Q1 2016 resulted in PAT growth narrowing to 10% y/y. Sequentially, sales were flat q/q. However, PBT and PAT grew by 47% q/q and 38% q/q respectively due to a combination of factors including a gross margin expansion of 255bps q/q, a 43% q/q reduction in interest expense and an 8% q/q decrease in opex. Compared with our forecasts, sales beat by 8%.
However, PBT and PAT beat by much wider margins of 30% and 22% respectively largely because of positive surprises in gross margins and net interest expense. On an annualised basis, although NB’s Q1 sales track ahead of consensus estimate by 9%, PBT and PAT are ahead by wider margins of 44% and 35% respectively.
Although we believe that the double-digit y/y growth on the topline was driven by a combination of higher pricing and volume growth, given average price increases of around 12% implemented by NB in 2016, we believe that the pricing impact was more pronounced.
We estimate that unit volumes grew by mid-to-high single-digit, driven by strong performance of the economy brands, such as Life and Goldberg. Pending management comments, we continue to believe that the volume performance of national premium brands (previously mainstream) such as “Star” continues to be pressured by the visible squeeze on household wallets.
Given that up to 60% of NB’s inputs are imported, we attribute the marked expansion in gross margin (+255bps q/q) to improved fx liquidity during the quarter following a significant step-up in the CBN’s fx intervention. The CBN’s intervention also led to a sharp appreciation of the naira on the parallel market in Q1.
We expect to see upward revisions to Consensus 2017 PBT forecast. NB shares have underperformed the index ytd. They have shed -16.2% ytd vs. the -5.9% return on the index.
We rate NB Underperform. Our estimates are under review.
Nigerian Breweries Q1 2017 results: actual vs. FBNQuest Research estimates (N millions)
| Q1 2017 | |||||
| Actual | Y/y | Q/q | FBNQuest est. | Act. vs FBNQuest est (%) | |
| Sales | 91,289 | 17.7% | 0.3% | 84,535 | 8.0% |
| Cost of sales | -50,724 | 26.0% | -4.1% | -47,762 | 6.2% |
| Gross profit | 40,564 | 8.8% | 6.4% | 36,773 | 10.3% |
| -Gross margin | 44.4% | -364bps | 255bps | 43.5% | 94bps |
| Dist. and admin. exp | -21,566 | 11.0% | -7.8% | -21,134 | 2.0% |
| Operating profit | 18,998 | 6.4% | 29.0% | 15,639 | 21.5% |
| Other income | 203 | 41.6% | -5% | 144 | 41.6% |
| Net interest expense | -1,762 | -41.0% | -42.5% | -2,365 | -25.5% |
| PBT | 17,439 | 16.2% | 46.8% | 13,417 | 30.0% |
| -PBT margin | 19.1% | -25bps | 605bps | 15.9% | 323bps |
| Tax | -5,990 | 31.6% | 67.6% | -4,025 | 48.8% |
| -Tax rate | 34.3% | 401bps | 427bps | 30.0% | 435bps |
| PAT | 11,449 | 9.5% | 37.9% | 9,392 | 21.9% |
| – PAT margin | 12.5% | -94bps | 342bps | 11.1% | 143bps |
Source: NSE; FBNQuest Estimates
