October 29, 2021/CSL Research

In its recently released 9M 2021 financials, Nigerian Breweries announced a Net Revenue growth of 32.1% y/y to N309.22bn from N234.02bn in 9M 2020. The firm’s performance continues to improve given that it has a wide-range of products that cater for all the income classes in its focus market. On a q/q basis, there was a 3.5% y/y dip in topline performance to N100.0bn from N103.58bn in Q2 2021. Compared with Q3 2020, there was a growth of 21.6% y/y in Revenue to N100.0bn  from N82.22bn  in the period. We ascribe the significant surge in Revenue to the effect of a low base from last year caused by the restrictions to movement and social activities that followed the outbreak of the covid-19 pandemic.

Cost of Sales (adjusted for depreciation) grew, up 42.9% y/y to N178.67bn from N125.04bn in 9M 2020. The growth in Cost of Sales outpaced Revenue growth. In our opinion, rise in volumes, foreign exchange depreciation amid rising local prices were the major drivers of the growth in cost of sales. The volume increase assumption comes from the relaxation of the earlier restrictions that had encumbered on-trade channels. As a result of the surge in Cost of Sales, Gross Profit Margin was down 4.4ppts to 42.2% in 9M 2021, as Gross Profit increased 19.8% y/y to N130.55bn from N108.98bn in 9M 2020.

Operating Expenses (adjusted for depreciation) also grew within the period, up 30.7% y/y to N76.61bn from N58.63bn in 9M 2020. The steep rise was due to the significant growth recorded across OPEX subcomponents such as Marketing and Distribution Expenses (up 34.7% y/y to N65.13bn) and Administrative Expenses (up 11.8% y/y to N11.4bn). The growth in Marketing and Distribution Expenses was driven by improvement in distribution activities which were encumbered in 2020 due to the restrictions. Despite the steep rise in OPEX, Earnings Before Interest, Tax, Depreciation and Amortization, supported by decent topline growth, recorded a modest growth of 7.1% y/y to N53.94bn. Depreciation and Amortization rose (up 5.3% y/y) to N29.7bn from N28.29bn in 9M 2020. In addition, Operating Profit was up 10.6% y/y to N25.04bn from N22.65bn in the corresponding accounting period of 2020.

Net Finance Cost rose in the period, up 4.3% y/y to N12.07bn from N11.57bn in 9M 2020. The rise in the cost line was due to deterioration  in both Finance Income (down 56.2% y/y to N95m) and Finance Costs ( up 3.1% y/y to N12.16bn) . Nonetheless, Profit Before Tax recorded a 17.2% y/y growth  to N12.98bn  from N11.07bn in 9M 2020. Net Income grew 20.1% y/y to N8.47bn  from N7.05bn in 9M 2020, supported by a lower ( Down to 34.7% from 36.3% in 9M 2020)  effective tax rate. Earnings Per Share in the period moved to N1.06/s from N0.88/s.

We have a target price of N65.55/s and a BUY recommendation on the stock. Current price;N52.80/s.