October 27, 2022/CSL Research

Nigerian Breweries plc has maintained a steady y/y growth in Revenue and PAT despite the prevailing hike in cost of doing business. The 9M 2022 unaudited numbers showed that Revenue grew by 27.2% y/y to N393.45bn (9M 2022) from N309.28bn (9M 2021). However, on a q/q basis, the Revenue moderated by 12.4% in Q3 to N119.37bn from N136.31bn recorded in Q2 2022. While we note that sales are usually at its peak in Q4 due to increased consumption during the yuletide season, we believe that the steady quarterly declines in Revenue may be related to the shrinking consumer disposable income as consumers adjust their expenditure pattern in favour of most basic needs.

The Cost of Sales (adjusted for depreciation) grew slower than Revenue, up 23.1% y/y to N219.92bn in 9M 2022 from N178.67bn in 9M 2021. This resulted in an increase in Gross Margin to 44.1% in 9M 2022 from 42.2% in 9M 2021. We note that the continued improvement in Gross Margin is impressive given the persistent global inflation and prevailing FX illiquidity resulting in the depreciation of the Naira. Nigerian Breweries recently noted it was in the process of increasing their locally sourced raw materials to 60%. Consequently, Gross Profit increased 32.9% y/y to N173.53bn in 9M 2022 from N130.61bn in 9M 2021.

Operating Expenses (adjusted for depreciation) remained elevated particularly on the back of Selling & Distribution Expenses (adjusted for depreciation) which grew by 50.8% y/y to N95.58bn in 9M 2022 from N63.38bn in 9M 2021. Administrative Expenses (adjusted for depreciation) grew by 23.3% y/y to N16.76bn in 9M 2022 from N13.6bn in 9M 2021. We note particularly that Distribution expenses, on a standalone, increased 105% to N39.74bn in 9M 2022 from N19.36bn in 9M 2021 which is reflective of the jump in diesel cost. Moreso, Advertising and Sales Expenses jumped by 71%. Consequently, EBITDA increased by 14.1% y/y to N61.19bn in 9M 2022 from N53.63bn in 9M 2021. EBITDA Margin notched by 1.9ppts to 44.1% in 9M 2022 from 42.2% in 9M 2021. The stunted growth in EBITDA Margin was largely driven by the increase in Opex margin.

Depreciation & Amortisation moderated by 5% y/y to N28.31bn in 9M 2022 from N29.79bn in 9M 2021.  In Q3 2022, the company recorded an Operating Loss of N959m triggered by a 12.4% decline in Revenue and 4.6% increase in COGS. Hence, the Operating Profit for 9M 2022 was N32.88bn, lower than H1 2022 (N33.84bn) but 37.9% higher than N23.84bn in 9M 2021. However, Other Income leaped by 180.3% y/y to N2.51bn in 9M 2022 from N894m in 9M 2021 thereby pushing Earnings Before Interest and Tax (EBIT) higher by 43.1% y/y to N35.39bn in 9M 2022 from N24.74bn in 9M 2021.

The company’s Finance Income jumped by 172.6% to N259m in 9M 2022 from N95m in 9M 2021 despite a 12% decline in Cash and Cash Equivalents to N14.69bn in 9M 2022 from N16.73bn as of December 2021. We believe the management may have repriced their balances with the banks in line with the rise in interest rates. However, Net Loss in Foreign Exchange transaction remained elevated, up 135% to N10.36bn in 9M 2022 from N4.41bn in 9M 2021 as FX illiquidity and consequent Naira depreciation persisted. Meanwhile, Finance Cost moderated, down 19.5%, to N6.19bn in 9M 2022 from N7.69bn in 9M 2021 as long-term loans & borrowings reduced by 18.53% to N5.57bn in 9M 2022 from N6.83bn as of December 2021. Overall, Net Finance Loss increased by 35.8% to N16.30bn in 9M 2022 from N12.00bn in 9M 2021.

Net Profit grew by 79.6% y/y to N14.76bn in 9M 2022 from N8.22bn in 9M 2021. The board approved an interim Dividend of 40k with 24 November as closure date.

We have a buy recommendation on Nigerian Breweries with a target our price target of N54.40 offers 33% upside potential on the current price of N40.80.  

Nigerian Breweries, 9M 2022 (Nm)

Source: Company, CSL Research