Earnings ReportFeatured

Harsh Business Regime Hits Deeper into Nigerian Breweries Half Year Earnings

Coy: Nigerian Breweries Plc (NB)
Rating: Sell
Current Market Price: N55.00

Latest Dividend: N1.83
Year High: N83.20
Year Low: N55.00
Fair Value: N34.63
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

  • This report on Nigerian Breweries explored the half year financial indices for the period ended June 30th, 2019, in other to effectively rate the result, it was compared with similar quarter’s result for the year 2018.
  • At a glance, the result is a lower performance when compared with similar figures released at the end of the first six months of 2018.
  • It is therefore necessary to identify few clear factors impacting the company’s performance both positively and negatively.
    • Negative factors working against the growth of Nigerian Breweries performance indices are;
      • Stiff competition among industrial peers
      • Aggressive competition by way of promotions and discounts
      • Weak consumers’ purchasing power
      • Very harsh business platform
      • Unfriendly interest rate, which to a large extent was avoided with consistent issuance of commercial papers
      • Transportation challenges
      • Insurgency, which made it more expensive and almost imposible to move their products to most part of the country especially the northern part of Nigeria
      • Epileptic power supplies which had forced many manufacturing companies to attempt supplying its own power at a more expensive amount
    • These notwithstanding, the giant brewer also control strength of its competitors in some areas, this include the following;
      • Large market size (population) in Nigeria
      • Good number of products and continuous product innovations
      • Consistent growth in the value of brands amongst several others
NIGERIA BREWERIES
Bourse Nigerian Stock Exchange
Code Name NB
Sector CONSUMER GOODS
Market Classification MAIN BOARD
Nature of Business Brewing and Marketing of Lager Beer, Stout and Non-Alcoholic
Date of Incorporation November 16th 1946
Date Listed September 5th 1973
End of Accounting Year 31st December
Website www.nbplc.com
Registrar First Registrars and Investor Services Limited
Auditor Deloitte & Touche
Share Price@Relsd (N)                                                  55.00
Earnings per Share                                                    1.66
Intrinsic Value(N) 34.63 
Share Outstanding 7,996,902,051
Market Capitalisation                                439,829,612,805

Company figures

  • Turnover figure dropped marginally against the corresponding quarter by 1.43%, as the current Turnover figure is N170.19 billion as against the N172.65 billion
  • Cost of Sales was seen to have maintained almost equal portion of the Turnover through the two periods compared. Please note that COS is currently valued at N98.54 billion against N172.65 billion
  • Operating Profit dropped by 22.62% at the current value of N24.46 billion compared to N31.61 billion in 2018
  • Nevertheless, Operating Expenses stood above comparable period by 6.05%. Estimated Opex is N47.61 billion versus N44.895 billion in 2018
  • Through the first six months of 2019, the brewery giant reported Finance Cost to the tune of N5.28 billion compared to N4.31 billion posted in 2018 half year result
  • Profit before Tax is valued for N19.37 billion this is same as 25.59% drop against the N27.51 billion in 2018
  • Profit declared at the end of the period stood at 27.81% below comparable period. Thus, N13.29 billion was achieved as profit as against the N18.51 billion in 2018
NIGERIA BREWERIES
Statement of Comprehensive Income
  2019 2018 %CHG
Turnover                170,191,184,000            172,659,629,000 1.43
Cost of Sales                  98,540,276,000               96,578,553,000 2.03
Operating Profit                  24,463,193,000               31,616,149,000 22.62
OPEX                  47,610,196,000               44,895,624,000 6.05
DEPRECIATION                  15,511,580,000               14,511,660,000 6.89
AMORTISATION                        663,378,000                     696,875,000 4.81
FINANCE COST                     5,287,556,000                 4,319,589,000 22.41
NET FINANCE INCOME                  (5,089,035,000)               (4,099,872,000) 24.13
PBT                  19,376,908,000               27,519,027,000 29.59
TAX                     6,080,059,000                 9,099,629,000 33.18
PAT                  13,296,849,000               18,419,398,000 27.81
TOTAL COMP INCOME                  13,318,268,000               18,434,869,000 27.76
Statement of Financial Position
Current Assets                  88,657,279,000               81,466,682,000 8.83
Non Current Assets                298,275,771,000            288,335,434,000 3.45
Total Assets                386,933,050,000            369,802,116,000 4.63
Current Liabilities                142,707,754,000            143,123,269,000 0.29
Non Current Liabilities                  78,999,528,000               55,185,606,000 43.15
Total Liabilities                221,707,282,000            198,308,875,000 11.80
Net Assets                165,225,768,000            171,493,241,000 3.65
Retained Earnings                  86,898,319,000               93,095,579,000 6.66
Shares Outstanding                     7,996,902,051                 7,996,902,051  
  • Current Assets is currently valued at N88.65 billion, this is same as 8.83% above the N81.46 billion estimated at the end of the first six months of 2018
  • Non-Current Assets held by the giant brewer is currently valued at N298.27 billion as against N288.33 billion in 2018 half year
  • Current-Liabilities stood at N142.70 billion same as 0.29% below the N143.12 billion stated in its 2018 half year result
  • Non-Current Liabilities builds by 43.15% to stand at N78.99 billion as against N55.18 million
  • Net Assets posted for the period therefor stood at N165.22 billion as against N171.49 billion
  • Retained Earnings dropped by 6.66% to stand at N88.89 billion versus N93.09 billion in 2018

Financial Strength/Solvency Ratios

  • Debt Ratio is currently estimated at 0.57x, 6.85% above the 0.54x estimated in the similar period of 2018. This implies that, Total Liabilities is same as 57% of Total Assets.
  • Total Debt to Equity was equally estimated at 1.34x as against 1.16x estimated in the comparable quarter. This simply implies that more debt was used in financing the company’s assets through the period
  • It was established that Equity is same as 43% of Nigerian Breweries Assets Value, estimate from 2018 half year performance indices yielded 46%
  • Nevertheless, we can conclude that Nigerian Breweries shares in fairly liquid although the estimated Beta stood slightly below market beta
Financial Strength/Solvency Ratio
TICKERS 2019 2018 %CHG
Debt Ratio                                        0.57                                    0.54 6.85
Total Debt to Equity Ratio (MRQ)                                        1.34                                    1.16 16.04
Equity Ratio                                        0.43                                    0.46 7.92
TICKERS 2019 Industrial Average %CHG
Beta Value                                        0.98                                    0.70 40.00

Profitability Ratios

  • EBITDA margin estimated for the period stood at 14.37%, same as 21.50% below the 18.31% estimated from the corresponding quarters’ numbers
  • Pre-Tax Margin equally dropped by 28.57% to 11.39% against the 15.94% estimated at the end of 2018 half year
  • Effective Tax Rate was fairly stable within the two periods compared in this report
  • As noted above, Nigerian Breweries maintained stable Cost of Sales over the two periods compared in this report
  • Return on Equity stood at 8.05% against 10.74% of 2018
PROFITABILITY RATIOS
TICKERS 2019 2018 %CHG
EBITDA MARGIN 14.37% 18.31% 21.50
PRE-TAX MARGIN 11.39% 15.94% 28.57
EFFECTIVE TAX RATE 45.73% 49.40% 7.44
CS TO TO 57.90% 55.94% 3.51
ROE 8.05% 10.74% 25.07
ROA 3.44% 4.98% 31.01

Efficiency Ratios

  • Operating Expenses to Turnover value is same as 27.79%, this is 7.58% improvement from the 26% estimated from 2018 half year financial indices
  • Turnover to Total Assets Ratios stood at 43.98% against 46.69% a 5.79% efficiency drop when compared to estimate from 2018 half year performance indices
  • Working Capital Ratio a ratio that indicates a company’s effectiveness in using its working capital was estimated at -3.15x a 12.44% growth from the -2.80x estimated in similar period of 2018
  • Further testing the management efficiency, we tested the Working Capital Ratio, which confirmed that Current Assets is lower than the current liabilities, although a marginal growth in this efficiency ratio from the previous quarter was noticed.
EFFICIENCY RATIOS
  2019 2018  
OPEX TO TO 27.97% 26.00% 7.58
TO TO TA 43.98% 46.69% 5.79
Working Capital Turnover                                     (3.15)                                  (2.80) 12.44
Working Capital Ratio                                        0.62                                    0.57 9.14

Investment/Valuation Ratios

  • At the end of 2019 half year business cycle, the management achieved earnings per share drop to the tune of 27.81% from the previously estimated N2.30 to N2.30
  • P/E-Ratio slipped by 27.09% having moved to 33.08x from 45.37x, please understand that the high P/E-Ratio is an indication of positive investors’ sentiments in the shares of Nigerian Breweries
  • The said Earnings per Share is yielded 3.02% of the current market price of Nigerian Breweries shares on the floor of the exchange as at the time the result was made available to the investing public
  • The Book Value of NB Plc is currently estimated at N20.66 this is far below the market value of the Coy on the floor of the exchange
  • Confirming and over-priced status of Nigerian Breweries shares on the floor of the exchange is the Price to Book Value which stood far above unity (2.66x)
Investment/Valuation Ratios
Tickers 2019 2018 %Chg
Price at Released 55.00 104.50 47.37
EPS 1.66 2.30 27.81
TCIP/SHARE 1.67 2.31 27.76
P/E-Ratio 33.08 45.37 27.09
Earnings Yield 3.02% 2.20% 37.16
BV/Share 20.66 21.44 3.65
PBV 2.66 4.87 45.37
CAPEX/SHARE 25.77 20.74 24.24

Valuation

Undoubtedly, the financial numbers of Nigerian Breweries Plc is not impressive in any way, the consistent drop in sales and profit is very worrisome. Since this report seeks to guide and improve investors’ precision, we have been very conservative while picking our valuation techniques. Amongst other things, we considered the latest cash dividend (interim dividend inclusive), the dwindling growth status of its earnings/dividend, ROE, at 10% COE. Thus, we have fairly valued each units of Nigerian Breweries Shares at N34.63, and have rated it a Sell.

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Earnings ReportFeatured

Harsh Business Regime Hits Deeper into Nigerian Breweries Half Year Earnings

Coy: Nigerian Breweries Plc (NB)
Rating: Sell
Current Market Price: N55.00

Latest Dividend: N1.83
Year High: N83.20
Year Low: N55.00
Fair Value: N34.63
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

  • This report on Nigerian Breweries explored the half year financial indices for the period ended June 30th, 2019, in other to effectively rate the result, it was compared with similar quarter’s result for the year 2018.
  • At a glance, the result is a lower performance when compared with similar figures released at the end of the first six months of 2018.
  • It is therefore necessary to identify few clear factors impacting the company’s performance both positively and negatively.
    • Negative factors working against the growth of Nigerian Breweries performance indices are;
      • Stiff competition among industrial peers
      • Aggressive competition by way of promotions and discounts
      • Weak consumers’ purchasing power
      • Very harsh business platform
      • Unfriendly interest rate, which to a large extent was avoided with consistent issuance of commercial papers
      • Transportation challenges
      • Insurgency, which made it more expensive and almost imposible to move their products to most part of the country especially the northern part of Nigeria
      • Epileptic power supplies which had forced many manufacturing companies to attempt supplying its own power at a more expensive amount
    • These notwithstanding, the giant brewer also control strength of its competitors in some areas, this include the following;
      • Large market size (population) in Nigeria
      • Good number of products and continuous product innovations
      • Consistent growth in the value of brands amongst several others
NIGERIA BREWERIES
Bourse Nigerian Stock Exchange
Code Name NB
Sector CONSUMER GOODS
Market Classification MAIN BOARD
Nature of Business Brewing and Marketing of Lager Beer, Stout and Non-Alcoholic
Date of Incorporation November 16th 1946
Date Listed September 5th 1973
End of Accounting Year 31st December
Website www.nbplc.com
Registrar First Registrars and Investor Services Limited
Auditor Deloitte & Touche
Share Price@Relsd (N)                                                  55.00
Earnings per Share                                                    1.66
Intrinsic Value(N) 34.63 
Share Outstanding 7,996,902,051
Market Capitalisation                                439,829,612,805

Company figures

  • Turnover figure dropped marginally against the corresponding quarter by 1.43%, as the current Turnover figure is N170.19 billion as against the N172.65 billion
  • Cost of Sales was seen to have maintained almost equal portion of the Turnover through the two periods compared. Please note that COS is currently valued at N98.54 billion against N172.65 billion
  • Operating Profit dropped by 22.62% at the current value of N24.46 billion compared to N31.61 billion in 2018
  • Nevertheless, Operating Expenses stood above comparable period by 6.05%. Estimated Opex is N47.61 billion versus N44.895 billion in 2018
  • Through the first six months of 2019, the brewery giant reported Finance Cost to the tune of N5.28 billion compared to N4.31 billion posted in 2018 half year result
  • Profit before Tax is valued for N19.37 billion this is same as 25.59% drop against the N27.51 billion in 2018
  • Profit declared at the end of the period stood at 27.81% below comparable period. Thus, N13.29 billion was achieved as profit as against the N18.51 billion in 2018
NIGERIA BREWERIES
Statement of Comprehensive Income
  2019 2018 %CHG
Turnover                170,191,184,000            172,659,629,000 1.43
Cost of Sales                  98,540,276,000               96,578,553,000 2.03
Operating Profit                  24,463,193,000               31,616,149,000 22.62
OPEX                  47,610,196,000               44,895,624,000 6.05
DEPRECIATION                  15,511,580,000               14,511,660,000 6.89
AMORTISATION                        663,378,000                     696,875,000 4.81
FINANCE COST                     5,287,556,000                 4,319,589,000 22.41
NET FINANCE INCOME                  (5,089,035,000)               (4,099,872,000) 24.13
PBT                  19,376,908,000               27,519,027,000 29.59
TAX                     6,080,059,000                 9,099,629,000 33.18
PAT                  13,296,849,000               18,419,398,000 27.81
TOTAL COMP INCOME                  13,318,268,000               18,434,869,000 27.76
Statement of Financial Position
Current Assets                  88,657,279,000               81,466,682,000 8.83
Non Current Assets                298,275,771,000            288,335,434,000 3.45
Total Assets                386,933,050,000            369,802,116,000 4.63
Current Liabilities                142,707,754,000            143,123,269,000 0.29
Non Current Liabilities                  78,999,528,000               55,185,606,000 43.15
Total Liabilities                221,707,282,000            198,308,875,000 11.80
Net Assets                165,225,768,000            171,493,241,000 3.65
Retained Earnings                  86,898,319,000               93,095,579,000 6.66
Shares Outstanding                     7,996,902,051                 7,996,902,051  
  • Current Assets is currently valued at N88.65 billion, this is same as 8.83% above the N81.46 billion estimated at the end of the first six months of 2018
  • Non-Current Assets held by the giant brewer is currently valued at N298.27 billion as against N288.33 billion in 2018 half year
  • Current-Liabilities stood at N142.70 billion same as 0.29% below the N143.12 billion stated in its 2018 half year result
  • Non-Current Liabilities builds by 43.15% to stand at N78.99 billion as against N55.18 million
  • Net Assets posted for the period therefor stood at N165.22 billion as against N171.49 billion
  • Retained Earnings dropped by 6.66% to stand at N88.89 billion versus N93.09 billion in 2018

Financial Strength/Solvency Ratios

  • Debt Ratio is currently estimated at 0.57x, 6.85% above the 0.54x estimated in the similar period of 2018. This implies that, Total Liabilities is same as 57% of Total Assets.
  • Total Debt to Equity was equally estimated at 1.34x as against 1.16x estimated in the comparable quarter. This simply implies that more debt was used in financing the company’s assets through the period
  • It was established that Equity is same as 43% of Nigerian Breweries Assets Value, estimate from 2018 half year performance indices yielded 46%
  • Nevertheless, we can conclude that Nigerian Breweries shares in fairly liquid although the estimated Beta stood slightly below market beta
Financial Strength/Solvency Ratio
TICKERS 2019 2018 %CHG
Debt Ratio                                        0.57                                    0.54 6.85
Total Debt to Equity Ratio (MRQ)                                        1.34                                    1.16 16.04
Equity Ratio                                        0.43                                    0.46 7.92
TICKERS 2019 Industrial Average %CHG
Beta Value                                        0.98                                    0.70 40.00

Profitability Ratios

  • EBITDA margin estimated for the period stood at 14.37%, same as 21.50% below the 18.31% estimated from the corresponding quarters’ numbers
  • Pre-Tax Margin equally dropped by 28.57% to 11.39% against the 15.94% estimated at the end of 2018 half year
  • Effective Tax Rate was fairly stable within the two periods compared in this report
  • As noted above, Nigerian Breweries maintained stable Cost of Sales over the two periods compared in this report
  • Return on Equity stood at 8.05% against 10.74% of 2018
PROFITABILITY RATIOS
TICKERS 2019 2018 %CHG
EBITDA MARGIN 14.37% 18.31% 21.50
PRE-TAX MARGIN 11.39% 15.94% 28.57
EFFECTIVE TAX RATE 45.73% 49.40% 7.44
CS TO TO 57.90% 55.94% 3.51
ROE 8.05% 10.74% 25.07
ROA 3.44% 4.98% 31.01

Efficiency Ratios

  • Operating Expenses to Turnover value is same as 27.79%, this is 7.58% improvement from the 26% estimated from 2018 half year financial indices
  • Turnover to Total Assets Ratios stood at 43.98% against 46.69% a 5.79% efficiency drop when compared to estimate from 2018 half year performance indices
  • Working Capital Ratio a ratio that indicates a company’s effectiveness in using its working capital was estimated at -3.15x a 12.44% growth from the -2.80x estimated in similar period of 2018
  • Further testing the management efficiency, we tested the Working Capital Ratio, which confirmed that Current Assets is lower than the current liabilities, although a marginal growth in this efficiency ratio from the previous quarter was noticed.
EFFICIENCY RATIOS
  2019 2018  
OPEX TO TO 27.97% 26.00% 7.58
TO TO TA 43.98% 46.69% 5.79
Working Capital Turnover                                     (3.15)                                  (2.80) 12.44
Working Capital Ratio                                        0.62                                    0.57 9.14

Investment/Valuation Ratios

  • At the end of 2019 half year business cycle, the management achieved earnings per share drop to the tune of 27.81% from the previously estimated N2.30 to N2.30
  • P/E-Ratio slipped by 27.09% having moved to 33.08x from 45.37x, please understand that the high P/E-Ratio is an indication of positive investors’ sentiments in the shares of Nigerian Breweries
  • The said Earnings per Share is yielded 3.02% of the current market price of Nigerian Breweries shares on the floor of the exchange as at the time the result was made available to the investing public
  • The Book Value of NB Plc is currently estimated at N20.66 this is far below the market value of the Coy on the floor of the exchange
  • Confirming and over-priced status of Nigerian Breweries shares on the floor of the exchange is the Price to Book Value which stood far above unity (2.66x)
Investment/Valuation Ratios
Tickers 2019 2018 %Chg
Price at Released 55.00 104.50 47.37
EPS 1.66 2.30 27.81
TCIP/SHARE 1.67 2.31 27.76
P/E-Ratio 33.08 45.37 27.09
Earnings Yield 3.02% 2.20% 37.16
BV/Share 20.66 21.44 3.65
PBV 2.66 4.87 45.37
CAPEX/SHARE 25.77 20.74 24.24

Valuation

Undoubtedly, the financial numbers of Nigerian Breweries Plc is not impressive in any way, the consistent drop in sales and profit is very worrisome. Since this report seeks to guide and improve investors’ precision, we have been very conservative while picking our valuation techniques. Amongst other things, we considered the latest cash dividend (interim dividend inclusive), the dwindling growth status of its earnings/dividend, ROE, at 10% COE. Thus, we have fairly valued each units of Nigerian Breweries Shares at N34.63, and have rated it a Sell.

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