April 27, 2022/CSL Research

In its recently unaudited Q1 2022 financials, Nigerian Breweries recorded a Net Revenue growth of 30.4% y/y to N137.7bn from N105.7bn in Q1 2021. The firm’s performance continues to improve, driven by a wide range of products that cater for all the income classes in its focus market. Although, we expect management’s guidance about the Revenue drivers. Yet, we recall that at its FY 2021 analyst call, Heineken NV (NB’s parent company) highlighted that the premium portfolio grew above 30.0%, led by its “Tiger” and “Heineken” brands, with the introduction of “Desperado”. We believe that the positive narrative around the Premium segment played out in Q1 2022, benefitting majorly from price increments. Q/q, there was also a modest 7.6% q/q increase in Revenue from N128.0bn in Q4 2021. We like the q/q growth (Q1 2022 relative to Q4 2021), considering the fact that Q4 is historically the best quarter for the firm. We also believe, additional volume from the expansion of its Ama factory, must have contributed to the revenue growth seen.

Cost of Sales (adjusted for depreciation) grew, up 16.3% y/y to N69.1bn from N59.4bn in Q1 2021. In our opinion, rise in volumes, the prevailing foreign exchange depreciation amid rising local prices were the major drivers of the growth in cost of sales. Nevertheless, Gross Profit Margin expanded by 6.0ppts to 49.8% in Q1 2022, as Gross Profit also increased 48.4% y/y to N68.7bn from N46.3bn in Q1 2021.

Operating Expenses (adjusted for depreciation) also grew within the period, up 63.5% y/y to N36.5bn from N22.3bn in Q1 2021. The steep rise was due to the significant growth recorded across OPEX sub-components such as Marketing and Distribution Expenses (up 66.9% y/y to N30.9bn) and Administrative Expenses (up 47.2% y/y to N5.7bn). Despite the steep rise in OPEX, the company remained resilient as EBITDA, supported by decent topline growth, was up 34.2% y/y to N32.1bn. Depreciation and Amortization declined by 5.6% y/y to N9.3bn from N9.8bn in Q1 2021. A 133.5% y/y increase in Other Income pushed the Operating Profit, up 63.7% y/y to N23.7bn from N14.1bn in the prior period (Q1 2021).

Net Finance Cost declined slightly in the period, down 0.5% y/y to N3.0bn. The marginal decline was supported by a stronger growth of 189.0% y/y in Finance Income as Finance Cost marginally increased by 1.1% y/y to N3.0bn. The breakdown of Finance Cost revealed that the company’s net FX loss increased by 206.7% y/y to N1.9bn, which was partly compensated by 51.5% decline in Interest Expense, leading to the marginal growth of 1.1% in Finance Cost. Supported by a reduced Net Finance Cost, Profit Before Tax grew 80.4% y/y to N20.7bn  from N11.5bn in Q1 2021. Effective Tax Rate grew from 33.5% in Q1 2021 to 34.4% in Q1 2022. Nonetheless, Net Income grew 77.7% y/y to N13.6bn  from N7.7bn in Q1 2021. Earnings Per Share in the period moved to N1.60/s from N0.95/s.

We have a target price of N65.55/s on the stock and maintain our BUY recommendation. Current price; 57.05/s. 

 Nigerian Breweries Q1 2022

Source: Company Financials, CSL Research