16/2/2018/InvestmentOne Report

·         Mixed topline growth: up +21.98% q/q; down -1.27% y/y

·         Mixed gross margin: up +659.9bps q/q; down -86.8bps y/y

·         Contraction in opex to sales ratio: down -592.9bps q/q; -97bps y/y

·         Improvement in PBT: N12.20bn in Q4 2017 against N370m in Q3 2017, +2.72% y/y 

On Thursday, Nigeria Breweries Plc (NB) published its Q4 2017 results, which was reflective of the fading impact of price hikes, weaker volume performance as highlighted by management of the parent company and lower interest rate environment. 

The company’s Q4 2017 results showed a +2.27% y/y increase in PBT to N12.20bn. This was driven by the -14.49% y/y decline in net finance cost as well as stability in gross profit margin (42% in Q4 2017) and opex/sales ratio (25% in Q4 2017), which more than outweighed the -1.27% y/y decline in topline to N89.87bn. 

We highlight that topline performance was less than inspiring given the price increases implemented in 2017. This may not be connected to weaker volume performance as highlight by the parent company, Heineken during the release of its results. Management specifically pointed to cost inflation and continued weak economic growth, which had hindered consumer purchasing power, as reasons behind the lackluster volume growth. 

With this said, the company appears to be managing its cost levels efficiently with opex/sales ratio unchanged y/y. 

On a sequential basis, PBT performance jumped to N12.21bn in Q4 2017, from c. N370m in Q3 2017. This spike in PBT may not be unconnected with the usual positive impact of the festive period as well as a relatively weak Q3 2017 when the company reported a -17.88% q/q drop in revenues and gross profit margin fell to 34.4%, from 45.4% Q2 2017.  

NB’s FY 2017 results showed a +17.53% y/y surge in PBT to N46.6bn, which was the largely driven by the -20.69% y/y decrease in net finance cost, which was inflated in 2016 but the depreciation of the local currency, flat opex/sales ratio as well as a +9.82% y/y rise in topline, which combined to offset the -154bps y/y contraction in gross profit margin.  

The decline in net finance cost was on the back of a reduction in foreign exchange loss by -33.4% y/y to N5.02bn as well as a -53% y/y drop in loans and borrowings.  

Overall, Nigerian Breweries Q4 2017 results were relative of recovery in stability in margins y/y but growth in profitability was hindered by poor volume performance given weak consumer purchasing power.  

Going forward, our concerns remain focused on the company’s lackluster volume performance given the likelihood of increased competition in the sector from the likes of International Breweries, following its consolidation with Padod and interfact.  

Furthermore, volume and margins may also see pressures from the potential increase in excise duty on alcohol to N35 per litre, from N17 per litre currently. With this said, we expect management focus to be on cost efficiency to boost bottom line performance in 2018 given the inability to inflict further price increases in the near term.  

However, we believe the much discussed increase in the national minimum wage could be a significant catalyst for company and sector performance in 2018.  

Our pricing models are currently under review. 

  Source: Company Financials, Investment One Research

Corporate Action: 

Final Dividend: N3.13 per share representing a dividend yield of 2.38% based on today’s close price. 

Closure Date: 7^th March, 2018-13^th March, 2018. 

Qualification Date: 6^th March, 2018. 

Payment Date: 23^rd April, 2018