Culled—Proshare
April 4, 2018/FBNQuest Research
Event: International Breweries reports Q3 2017 (end-Dec) results
Implications: Neutral-to-negative reaction expected by the market
Positives: Limited
Negatives: Pre-tax loss of –N3.5bn
Earlier today, the NSE published International Breweries’ Q3 2017 (end-Dec) results. The company officially merged with Pabod Breweries (Pabod) and Intafact Beverages (Intafact) on November 13, 2017. The figures published include numbers for Pabod and Intafact but on a pro-rata basis (from November 13, 2017). As such, we are unable to do y/y and q/q comparisons in our analysis.
Q3 2017 sales were N19.1bn and were broadly in line with our estimate. The company reported a pre-tax loss of –N3.5bn for the quarter, mainly driven by relatively low gross margin and a high opex-to-sales ratio. Gross margin for the quarter was 29.7% and compares with an average gross margin of 45.6% reported by International Breweries alone over the last five years.
Also opex-to-sales recorded was 32% versus an average of 22.4% over the same period. The company reported PAT of N1.5bn, mainly owing to a tax figure of N5.0bn for the quarter. The ratios are disappointing because we had expected the stable fx environment and our anticipation of improved cost efficiencies following the merger to positively impact on the results. We will be seeking management’s clarity on this.
On a 9M basis, sales were N36.5bn, pre-tax loss came in at –N3.2bn while PAT was N1.4bn. Gross margin and opex-to-sales were 38% and 29% respectively, again weaker than figures reported over the last five years as stated earlier. Compared with our estimates, sales were broadly in line while PBT came in significantly behind due to the negative surprises on the gross margin and opex lines.
We expect the market reaction to these numbers to be neutral-to-negative.
Year to date, International Breweries shares have been flat compared with a +6.6% gain returned by the NSEASI.
We rate International Breweries shares Neutral. Our estimates are under review.
International Breweries Q3 2017 (end-Dec) results: actual vs. FBNQuest Capital Research estimates (N millions)
| Q3 2017 | 9M 2017 | |||||
| Actual | FBNQuest Capital est. | Act. vs FBNQuest Capital est (%) | Actual | FBNQuest Capital est. | Act. vs FBNQuest Capital est (%) | |
| Sales | 19,126 | 19,777 | -3.3% | 36,528 | 37,178 | -1.7% |
| cost of sales | -13,440 | -10,722 | 25.4% | -22,820 | -20,101 | 13.5% |
| Gross profit | 5,686 | 9,055 | -37.2% | 13,708 | 17,077 | -19.7% |
| –Gross margin | 29.7% | 45.8% | -1606bps | 37.5% | 45.9% | -840bps |
| Operating expenses | -6,164 | -4,752 | 29.7% | -10,636 | -9,225 | 15.3% |
| Other operating income | -5 | -5 | 0.0% | 0 | n/a | |
| Operating profit | -482 | 4,298 | n/a | 3,071 | 7,852 | -60.9% |
| Net int. and similar chgs | -4,100 | -1,131 | 262.5% | -6,394 | -3,426 | 86.7% |
| PBT (before losses) | -4,582 | 3,167 | n/a | -3,323 | 4,426 | n/a |
| Other gains/losses | 1,107 | 18 | 5968.7% | 123 | -965 | n/a |
| PBT | -3,475 | 3,186 | -n/a | -3,200 | 3,461 | n/a |
| -PBT margin | -18% | 16.1% | -3428bps | -9% | 9.3% | -1807bps |
| Tax | 4,957 | -893 | n/a | 4,629 | -1,221 | n/a |
| Tax rate | 143% | -28.0% | 17068bps | -145% | -35.3% | -10939bps |
| PAT | 1,482 | 2,292 | -35.4% | 1,429 | 2,240 | -36.2% |
| -PAT margin | 8% | 11.6% | -384bps | 4% | 6.0% | -211bps |
Source: NSE; FBNQuest Capital estimates
