April 27, 2023/CSL Research

Nigerian Breweries’ top-line unprecedentedly shrank y/y. The Q1 2023 unaudited numbers showed that Revenue declined by 10.5% y/y to N123.31bn (Q1 2023) from N137.78bn (Q1 2022). Also, on a q/q basis, Revenue dipped, down 21.6% in Q1 2023 to N123.31bn from N157.19bn recorded in Q4 2022. We opine that the weakened consumer purchasing power moderated sales volumes as consumers continue to adjust their expenditure pattern in favour of most contingent and basic needs added to the fact that Q1 is usually a weak quarter for brewers. Again, Q1 2023 was characterized by cash scarcity which must have affected demand.

The Cost of Sales (adjusted for depreciation) however grew marginally, up 3.5% y/y to N71.51bn in Q1 2023 from N69.1bn in Q1 2022. Gross Margin declined to 42% in Q1 2023 from 49.8% in Q1 2022. Consequently, Gross Profit was down 24.6% y/y to N51.81bn from N68.67bn in Q1 2022.

Operating Expenses (adjusted for depreciation) grew marginally, up 3.0% y/y driven by selling & distribution expenses (adjusted for depreciation) which grew marginally by 2.0% y/y to N31.43bn in Q1 2023 from N30.81bn in Q1 2022 and advertising and sales expenses which declined by 24.1%.  Administrative Expenses (adjusted for depreciation) was up 8.1% y/y to N6.68bn from N6.18bn in Q1 2022. Despite this, EBITDA contracted by 58.8% y/y to N13.25bn in Q1 2023 from N32.13bn in Q1 2022. EBITDA Margin was down by 12.6ppts to 10.7% in Q1 2023 from 23.3% in Q1 2022 largely due to the impact of lower Revenue.

Depreciation & Amortisation grew by 26.6% y/y to N11.73bn in Q1 2023 from N9.26bn in Q1 2022. The company recorded Operating Profit of N1.53bn in Q1 2023, a 93.3% decline from Q1 2022 of N22.86bn. Also, Other Income declined by 58.5% y/y to N356m from N859m in Q1 2022. In effect, Earnings Before Interest and Tax (EBIT) shrank by 92.1% y/y to N1.88bn in Q1 2023 from N23.72bn in Q1 2022.

In Q1 2023, the company’s Finance Income dwindled by 45.8% to N40m from N74m in Q1 2022 amidst a 10% decrease in Cash and Cash Equivalents to N19.85bn in Q1 2023 from N22.18bn as of December 2022. We believe management may need to reprice their balances with the banks in line with the rise in interest rates. However, Net Loss in Foreign Exchange transaction spiked by 680.2% to N14.64bn in Q1 2023 from N1.87bn in Q1 2022 as FX scarcity and consequent Naira depreciation persisted. Finance Cost jumped by 307.6%, to N4.7bn in Q1 2023 from N1.16bn in Q1 2022 despite a reduction in long-term loans & borrowings which was down 13.57% to N2.01bn in Q1 2023 from N2.43bn as of December 2022. We believe this is due to the rising interest rate environment. Overall, Net Finance Loss increased by 552.5% to N19.32bn in Q1 2023 from N2.96bn in Q1 2022.

The company reported Loss After Tax of N10.72bn compared with N13.6bn PAT in Q1 2022.

Our price target is being reviewed. Current price is N36.5/s.