Earnings ReportFeatured

Insurgency, High Importation Cost, Low Purchasing Power, Further Depressed Nigerian Breweries’ Earnings -Q1-2019

Company: NIGERIAN BREWERIES PLC (NB)

Rating: Hold

Current Market Price at Earnings Release: N64.00

Intrinsic Value: N75.03

Latest Cash Div: N1.83

By: Jeariogbe Tunde Segun (Equity Analyst)

Note: For One on One Technical Analysis of the equities market Training, Installation of Charting Tools, Special Reports on Quoted Equities, Staff Training on Research Skills, Outsourcing Your Firms Research Works e.g. Daily Market Update, Earnings Report, Market News Update & Economic News Update…..Call Us on 08098865598, 08037155684

Key Financial Tickers:

  • This report accessed the financial statistics of Nigerian Breweries for the first three months of 2019 and compared same with the corresponding period of 2018 to established growth/decline where appropriate
  • All key financial indices reported shows that performance during the quarter stood below the corresponding period of 2018
  • That is, estimated ratios stemmed below that of the corresponding quarter.
  • Safe the Cost of Sales Margin that slightly improved, other observed Profitability Ratios in this report stood below the corresponding quarter estimates

Nigerian Breweries Plc Strength

  • NB is Nigeria’s largest brewing group, controlling over 60% of the country’s beer market.
  • The Group has a well-diversified product portfolio of 26 brands,
  • As well as a wide geographical footprint (with nine breweries and two malting plants across the country),
  • Large distribution network and extensive customer base, run by an experienced management team.
  • A further strength is the operational and strategic support from its parent company, Heineken N.V. Global, a major global brewing group, with operations in more than 70 countries.
  • Nigerian Breweries Plc (NB) and CrossBoundary Energy Limited (‘CrossBoundary’) recently signed a Solar Power Purchase Agreement for the installation and operation of a 650 kW solar plant located at her Ibadan Brewery. According to the management, the solar energy plant will become operational this year 2019.
  • This landmark project is the first of its kind in Nigeria as it will supply 1GWh annually to the Ibadan Brewery at a significant discount to the current cost of power. It will also reduce the Brewery’s CO2 emissions by over 10,000 tonnes over the lifespan of the plant.

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Challenges

  • Although the giant brewer seems to be taking giant steps in controlling the power challenges, its imperative we mention that power instability is one major challenge faced by operators in the manufacturing industries
  • High Cost of importation of raw materials is another tough point currently faced by the company
  • Wide spread insurgency in key part of the country, most of which preached against the company products has also played a big role in downing the company’s sales
  • Low purchasing power is another major challenge facing the sale of Nigerian Breweries Products, around the country. Please understand that although the government is now positive on minimum wage increment, the plan to be more strategic and aggressive on Tax collection will definitely take back the said increments
  • In other words, the chances of Nigerian Breweries building performance indices might be slim at the moment. In our opinion, same goes for others in this line of business and especially other manufacturers.

Corporate Figures

  • At the end of the first three months of 2019, Nigerian Breweries builds Revenue by marginal 3.33% above that of similar period in 2018. That is, the current Revenue is estimated at N91.38 billion as against N88.44 billion
  • A total of N8.11 billion was reported through the period as expenses on Excise Duty, this is above the N5.47 billion expended in similar quarter of 2018
  • Thus, Cost of Sales stood at N48.22 billion as against N44.94 billion reported for same item in corresponding period of 2018
  • Gross Profit for the period therefore stood at N35.05 billion compared to the N38.01 billion achieved in 2018 first quarter business activities
  • Having considered all operating expenses, Operating Profit stood at N14.05 billion, this is 20.42% lower than the N17.66 billion reported in 2018
  • Finance Cost was managed through the period as it only inched north by 2.83% to stand at N21.15 billion compared to the previously reported N20.57 billion
  • Profit before Tax is estimated at N11.45 billion, this is exactly 24.86% below the N15.24 billion earned in 2018
  • In the same trend, Profit reported for the first three months of 2019 stood at N8.02 billion, below the N10.20 billion posted in its 2018 first quarter report

  • Retained Earnings also dipped by 12.43% at the current value of N96.24 billion as against the N109.89 billion reported in 2018
  • Non Current Assets inched marginally north by 2.34% at its new value of N300.88 billion compared to N293.99 posted in 2018
  • Meanwhile, Current Assets value inched south by 14.89% to stand at N87.20 billion compared to N102.45 billion last year
  • Boosted by various commercial papers during the quarter, the Non Current Liabilities appreciated by 65.57% to stand at N83.45 billion against N51.33 billion.
  • Current Liabilities on the other hand, dropped by 17.09% to stand at the current N129.70 billion compared to the N156.44 billion reported in 2018 first quarter performance
  • On the strength of the above, Net Assets value came lower by 7.29% at the reported N174.92 billion

Liquidity/Risk Ratios

  • Total Debt is currently estimated to be 1.22 the size of the equity, that is, Debt to Equity Ratio is currently 1.22x, this is far above the industrial average at 0.70x
  • At below unity Current Ratio, the firm is sure to find it somehow tight in servicing its Current liabilities as at when due. The industrial average is just one, signifying that such situation is common among its industrial peers
  • Standing above unity, the estimated beta value of 1.09x confirmed favorable investors’ patronage of the shares of Nigerian Breweries Plc
  • At 14.31x Interest Coverage, we can safely conclude that Nigerian Breweries Plc will easily service its interest yielding liabilities as at when due. This is a further confirmation of the safety of its various commercial papers

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Profitability Ratios

  • Cost of Sales margin is currently estimated at 52.77%, this is 3.83% above the 50.82% estimated at the end of the corresponding quarter of 2018.
  • Profit before Tax margin is 27.28% below the Q1-2017 estimate. The ratio is now estimated at 12.54% as against 17.24% last year
  • Profit Margin estimated for the year is 8.78%, same as 23.88% below the 11.54% margin achieved in 2018 first quarter
  • Return on Average equity is currently estimated at 4.59% below the 5.41% achieved in 2018
  • Return achieved on Average Assets is now 2.07% as against 2.57%

Efficiency Ratios

  • Testing the management efficiency, the Asset Turnover was gauged, the Ratio improved marginally by 5.56% from 22.31% to 23.55%.
  • Also tested was the Equity Turnover, which currently stood at 52.25% as against the 46.88% estimated in 2018.
  • In other words, the equity was multiplied 2.22 times through the quarter under analysis, this is 5.59% above the 2.10 times multiples achieved in 2018
  • It was also estimated that Fixed Assets turnover is same as 23.55% above the 22.31% estimated in 2018

Investment Ratios

  • In similar pattern to the company’s earnings reported above (since shares outstanding remains same), the estimated Earnings per Share (EPS) is N1.00, same as 21.35% below the N1.28 estimated in 2018 first quarter
  • The said earnings yielded 1.57% of the equity’s share price on the floor of the exchange as at the result was released to the investing public
  • Price Earnings Ratio remained on the high side at 15.94x as against 25.41x. This can equally mean high investors’ sentiments for the shares of Nigerian Breweries
  • Showing an overpriced position, the Price to Book value ratio is 2.93x compared to the previously estimated 5.50x
  • Further confirming this position is the estimated Book Value of N21.87
  • Operating Expenses Margin to Turnover is 23.15% this is 0.48% below the 23.26% estimated in 2018

Valuation

  • While trying to value the share price of Nigerian Breweries, we put into consideration the unstable growth rate of the dividend, the poor performance which will surely reduced the expected future returns from the firm. Thus, we explore the Dividend Discount Model Valuation model using 2-stage H-Model.
  • We have down valued each units of Nigerian Breweries shares for N75.03

Note: For One on One Technical Analysis of the equities market Training, Installation of Charting Tools, Special Reports on Quoted Equities, Staff Training on Research Skills, Outsourcing Your Firms Research Works e.g. Daily Market Update, Earnings Report, Market News Update & Economic News Update…..Call Us on 08098865598, 08037155684

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