March 2, 2023/Cordros Report
We update our views on Nigerian Breweries Plc (NB) following its 2022FY result. We view NB as a value name in the Nigerian brewery industry due to its large market share (54.2%; as of 9M-22), high margins, impressive FCF generation and consistent dividend payments. Thus, we believe NB remains on track to deliver positive earnings in 2023E, underpinned by its strong pricing, premiumisation led by Heineken® and improvements in its route-to-market strategies. Nevertheless, we note that the challenging operating environment and low disposable income remain significant downside risks to our outlook. In this report, we revised our estimates to account for our revenue expectations in 2023FY amid elevated cost pressures in the operating environment. We revise our price target to NGN49.35/s (previously; NGN60.71/s) implying a “HOLD” rating on the stock. On our 2023E EPS of NGN2.01 (+27.2% y/y), we estimate a DPS of NGN1.81, implying a dividend yield of 4.4% based on the last closing price of NGN41.25.00/s.
Sturdy Topline Growth Buoys Profitability: NB’s revenue grew by 25.9% y/y in 2022FY primarily driven by strong pricing and brand mix improvements. Accordingly, gross profit margin expanded by 206bps to 38.7% in 2022FY, (2021FY: 36.7%), as the strong revenue growth (+25.9% y/y) outweighed the increases in the cost of sales (+21.8% y/y). However, the group’s EBIT (-9bps) and EBITDA (-234bps) margins declined to 9.4% and 16.6%, respectively, in 2022FY as the elevated OPEX (+31.6% y/y) eroded gains from gross margin improvement. Nonetheless, EPS settled at NGN1.58 (2021FY: NGN1.57) in 2022FY.
Volume Growth To Remain Subdued In 2023: Management attributed the lower volume growth in the period to pressure on consumer disposable income amid supply chain bottlenecks in production. As a result, we expect volume growth to remain subdued in 2023E given the cautious macro-outlook, increased consumer price sensitivity, particularly in view of the persistent erosion of purchasing power amid heightened inflationary pressures. Although a bright spot for volume still exists in the premium segment leveraging Heineken® amid increased capacity following the expansion activities in Ama brewery. On the whole, we estimate topline performance for 2023E at NGN688.30 billion, indicating a 25.0% y/y growth, underpinned by price increases and premiumisation.
Margins to Moderate on Higher Cost Pressures: We expect gross margin for 2023E to be flat at 38.8%, as NB continues to face costs, and excise pressures amid the expected price increases. Excise duty on beer and stouts is expected to grow to NGN45.00/cl (+12.5%) in 2023, further impacting revenue. Elsewhere, we expect EBITDA margin to moderate (-10bps y/y) to 16.5% amid higher OPEX (+27.1% y/y), as we expect OPEX to reflect increased marketing expenditure in pursuit of the sell-out strategy, in a bid to support volume. Overall, we forecast an EPS growth of 27.2% y/y to NGN2.01 in 2023FY.
Valuation: We revise our target price to NGN49.35/s (previously: NGN60.71/s), implying a 19.6% potential upside. YTD, NB’s stock (+6.0%) has underperformed both the Consumer Goods (+17.2%) index and the broad All-Share Index (+8.3%). On our estimates, NB currently trades on 2023E P/E and EV/EBITDA multiples of 20.5x and 4.5x respectively, relative to MEA peer averages of 20.5x and 7.1x respectively.
