April 15, 2025/Cordros Report
In this note, we update our views on NB for 2025E. The brewer retained top spot in beer market share in 2024FY (55.2%, 2023FY: 53.2%), generating NGN1.08 trillion in revenue (+80.85% y/y). However, a 342bps decrease in EBITDA margin following sustained cost and OPEX pressure, as well as still biting FX losses (NGN157.60 billion), cemented the losses seen in preliminary numbers. In this update, we assign a year-end target price of NGN38.84/s (prev: NGN30.05/s) and upgrade our rating on the stock to a “BUY”, (prev: “HOLD”). Our TP is particularly underpinned by NB’s ability to revive and sustain strong growth across key operating margins amid the abating domestic macroeconomic conditions. Nonetheless, we highlight that our valuation for NB was significantly dampened by the increased outstanding shares (+ 20.71 billion shares) following the rights issue in 2024FY. On our estimates, NB trades on a 2025E EV/EBITDA of 3.3x (Bloomberg MEA average: 8.6x).
Positive EPS expected in 2025E: We forecast a revenue growth rate of 27.1% y/y (2024FY: 80.9%), particularly driven by NB’s ability to retain market share (55.2%) in 2025FY, amid our expectation of marginal price increases. Over our forecast horizon (2025E – 2029E), we project an average revenue growth of 20.8%. Consequently, EBITDA margin is expected to increase to 15.1% (2024FY: 11.9%), as we expect lower cost (Cost-to-sales ratio: -350bps to 67.0%) and OPEX (cost-to-sales ratio: -49bps to 22.6%) pressures. In 2024FY, NB drastically reduced its FCY liabilities margin to 13.4% (2023FY: 32.1%), while FCY assets margin increased to 13.2% (2023FY: 4.9%). This was achieved by eradicating FCY loans and payables and FX acquisition (as cash and for “deposit for imports”) using proceeds from last year’s rights issue. Consequently, we do not expect any adverse impact from FX volatility in 2025FY. Precisely, we project a net FX gain of NGN16.24 billion (vs net FX loss of NGN157.60 billion in 2024FY). This essentially underpins our projections of NB’s return to profits, with 2025E EPS estimated at NGN1.78 (vs 2024FY loss per share of NGN12.07).
Operating margins are still weak: Though improving, we specifically highlight that NB’s operating margins remain weak. For context, NB’s gross and EBITDA margins averaged 35.1% and 16.6%, respectively, over 2020 – 2024FY, relatively weaker than the levels obtainable in the prior five-year period (2015 – 2019FY) – gross margin: 42.6% | EBITDA margin: 25.9%. The lower margin print over the period reflects the adverse impacts from policy shifts, currency depreciation, and high energy costs in a post-COVID pandemic era. Over 2025 – 2029E, our model only points to a slight improvement in the average (gross margin: +1bp to 35.1% | EBITDA margin: +58bps to 17.2%), as we expect elevated fuel/logistics costs and high exchange rate to inhibit operating margin expansion in the ensuing period.
Valuation: Our year-end target price is NGN38.84/s (indicating a 21.4% upside to the current NGN38.84.00/s market price) derived from an equal blend of DCF and sector relative valuation (P/S & EV/EBITDA) estimates. Our DCF FV (N19.96/s) is derived from an equal blend of FCFF (TP: NGN19.99/s) and FCFE (TP: NGN19.00/s) estimates, assuming a 28.7% WACC and a 4.0% terminal growth rate. On P/S (TP: NGN64.24/s), we utilised the 2024 Middle East & African (MEA) peer average multiple of 1.40x. For EV/EBITDA (TP: NGN54.15/s), we utilised the 2024 MEA peer average (8.6x).
