May 28, 2024/Cordros Report
This report provides an updated view of INTBREW for 2024E. Like its peers in the brewery industry, INTBREW reported significant revenue growth in Q1-24 (+89.7% y/y), driven by higher prices, volume growth, and a low base from Q1-23 due to the naira redesign policy that impacted sales. However, this resurgence was limited to the top line, as the brewer faced elevated input costs and significant FX losses during the period. Consequently, INTBREW reported a net loss of NGN60.39 billion (vs net loss of NGN2.31 billion in Q1-23). For 2024E, we expect revenue growth to be driven by pricing, product innovation, and continuous product mix optimisation. Accounting for elevated cost pressures, we revise our target price to NGN4.44/s (previously NGN4.54/s), which results in a “BUY” (prev: “HOLD”) rating. While we note that earnings are currently impacted by huge currency exposure and high financial charges, we are optimistic about an improved performance beyond 2024E following the planned execution of a right issue to deleverage the balance sheet, reduce the FX impact on financial performance, and reposition the company for growth. On our estimates, INTBREW trades on a 2024E EV/EBITDA multiple of 7.6x.
Earnings pressured by higher costs and finance expense: For 2024E, we anticipate sustained price increases and volume growth will drive topline expansion. We are optimistic about management’s strategies to boost revenue, such as optimising the product mix to enhance brand quality. Consequently, we forecast a 27.1% revenue growth y/y in 2024E and an average growth of 19.0% from 2025E to 2028E. Nevertheless, faced with the hurdle of elevated input costs, primarily due to the high cost of raw materials, we forecast gross margin to print 32.6% (-60bps y/y) in 2024E and expect the operating margin to turn positive (13.6% | 2023FY: negative print of 17.7%) driven by the anticipated reduction in FX loss. While we expect proceeds from the rights issue to offset the related interests accruing on the foreign loan, we do not expect a return to profitability in 2024E due to higher cost pressures and an increase (+77.6% y/y) in finance costs on local bank loans. Nonetheless, we estimate a lower loss per share of NGN0.69 (vs loss per share of NGN2.57 in 2023FY), contingent on the successful completion of the rights issue.
Successful rights issue in Q2-24 to support earnings turnaround: As part of its strategy to return to profitability, INTBREW proposed a rights issue, which received overwhelming support from shareholders and SEC approval. The rights issue (NGN588.28 billion) will enable shareholders, including the parent company, AB InBev, to inject equity to recapitalise the business and settle the USD389.08 million (approx: NGN354.72 billion using NGN911.68/USD) outstanding loan as of 2023FY, which funded its Sagamu production plant. The issue, primarily underwritten by AB InBev (87.0% shareholding), aims to retire all existing foreign debt and improve the brewer’s cash flows and profitability. Beyond 2024E, we expect improved pricing, an aggressive cost-cutting strategy, to boost the company’s earnings with an anticipated EPS rebound to NGN0.26 in 2025E and a CAGR of 58.3% over 2025-2028E.
Valuation: Our year-end TP is NGN4.44/s, derived through an 80/20 blend of DCF and sector-relative valuation estimate (EV/EBITDA). Our DCF FV is derived from an equal blend of FCFF (NGN7.47/s) and FCFE (NGN2.67/s), assuming a 21.8% WACC and a 4.0% terminal growth rate. Meanwhile, on EV/EBITDA, utilising the MEA peer average EV/EBITDA multiple of 5.6x, we derived a fair value estimate of NGN0.69/s.
