October 26, 2023/Cordros Report

Nigerian Breweries Plc (NB) published its Q3-23 unaudited financials after close of business yesterday (25 October). The results showed a loss per share of NGN1.16 (vs loss per share of NGN0.49 in Q3-22), due to the higher net finance costs (+49.5% y/y). As a result, 9M-23 loss per share printed NGN6.89 (vs EPS of NGN1.82 in 9M-22)
 
Following the economic pressures in the period, NB’s revenue grew slowly by 4.2% y/y in Q3-23 (9M-23: +2.1% y/y), supported by price increases (c.8.0%). On the other hand, sales volume declined in the period. On a quarter-on-quarter basis, revenue declined by 19.3%, primarily due to the decline in volume.

For Q3-23, gross margin expanded by 236bps y/y to 32.3% (Q3-22: 30.0%), following the slower growth in cost of sales (+0.7% y/y) in the period. While awaiting further clarification from management, we believe the company’s efforts at reducing imports and shifting to locally sourced primary ingredients like sorghum, a key component in lager production, contributed to managing costs.

NB recorded an operating loss of NGN1.12 billion (Q3-22: NGN452.29 million), owing to the 12.4% y/y increase in operating expenses.

Further down, net finance charges increased by 49.5% y/y due to a 149.7% y/y rise in finance costs, offset in part by a 49.2% y/y decline in loss on foreign transactions. The surge in finance costs resulted from increased interest expenses on loans and borrowings, particularly as total borrowings rose by 151.1% YTD to NGN308.00 billion.

Finally, NB recorded a pre-tax loss of NGN10.32 billion in Q3-23 (vs pre-tax loss of NGN6.60 billion in Q3-22). Following a NGN723.27 million tax credit in the period, the loss after tax printed lower at NGN9.60 billion (vs loss after tax of NGN3.99 billion in Q3-22).

Comment: The performance of the brewer was deeply impacted by seasonal fluctuations and a combination of FX illiquidity and higher borrowing costs. In addition, we are concerned that the brewer has declared losses for three consecutive quarters. Consequently, we maintain a cautious stance on the stock due to the persistent negative trend in operating results (operating losses), which has continued to exert pressure on its profitability, especially in the face of rising finance costs. However, we expect revenue improvement during the peak-selling season, driven by higher demand and pricing. Our estimates are under review.