International Breweries: Riding On Promises, Awaiting Earnings Confirmation

Company: International Breweries Plc
Current Market Price: N54.40
Intrinsic Value: N18.00
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Financial Tickers
• This analysis reviews the nine-month Audited financials result for the year ended 31st December, 2017. This was compared with the last Audited result for the full-year ended March 31, 2017.
• Explanation behind the different financial years above was the company’s decision to migrate its financial year to December 31, leading to the production of its first December year-end result in 2017.
• During the last financial year, International Breweries concluded its merger with Intafact and Pabod, following which it transferred all assets, liabilities, along with employees, real and intellectual property rights to International Breweries Pls. Please note that the consideration of the transfer were transferred to the shareholders of Intafact and Pabod in form of ordinary shares of International Breweries Plc
• On the strength of the above, on December 14, 2017 a total of 5,301,612,656 ordinary shares of International Breweries Plc were added to the Daily Official List of The Exchange.
• With this listing, the total issued and fully paid up shares of International Breweries Plc has now increased from 3,294,249,280 to 8,595,861,936 ordinary shares.
• The shareholding structure of the company shows that a single portfolio investor has 27.66% stake, 26 foreigners hold 47.38% while Corporate bodies and Individuals control 10.39% and 7.44% respectively.

• The company is currently being managed by Anheuser-Busch InBev which prides itself as the world’s largest brewer and one of the leading consumer product companies.
• AB InBev acquired SABMiller (in 2016). Before then, SABMiller was the majority shareholder in International Breweries. As at March 31, 2017 the company owned 72.17% of International Breweries.

• Tight business environment, especially in the area of:
 Foreign Exchange instability
 Power generation hiccups and
 High cost of funds
 Amongst others
• International Breweries plays the brewing market with the likes of Nigerian Breweries and Guinness Plc. Without much argument, one will safely conclude that it is more of a fox and elephant challenge, compared to its two giant competitors.
• These two giant brewers dominate major business spheres within the country and also boasts of a number of nationally accepted products.
• The reduced purchasing power of the Nigerian citizens is another challenge posing against the company’s business.

Corporate Figures
• Despite the dwindling sales in the brewing market, International Breweries improved Turnover by 11.67% against the comparable year. Please understand that the figures include the turnover figures of the two new babies recently acquired
• Arising from the increased operating expenses and finance cost, the company reported a Loss before Tax of N3.99 billion as against the Profit before Tax of N8.08 billion in March 2017
• Nevertheless, the loss was mitigated by the impact of the N4.758 tax assets that returned earnings to a profit line of N1.429 billion which is 38.18% above the N1.034 billion reported in the last audited result
• Also, following from the acquisition, the balance sheet items soared against the last audited financials:
 Retained earnings grew to N30.55billion from the N4.71 billion
 Total Assets increased by 464.51% from N44.962 billion to N253.82 billion
 Total Liabilities equally appreciated by 589.24% from N31.08 billion to N211.44 billion
 And Net Assets now stand at N42.375 billion as against the previous N13.87 billion

Liquidity/Risk Ratios
• Slightly above its peers, International Breweries’ Debt to Equity ratio stood at 64.55% as against the industry average of 60.77%
• At 0.20x current ratio, it became glaring that the company will find it very tough to settle its short term liabilities when such falls due. Although the industry average stood slightly below a unit, the 0.22x is quite on the low side
• Nevertheless, International Breweries seems to be enjoying more investors’ patronage when compared to others in its sector as it controls a beta value slightly above a unit
• With interest coverage of 1.56 International Breweries though may not need to assess more interest yielding loans, has enough capacity to finance existing loans.

Profitability Ratios
• The Cost of Sales margin increased by 16.46% from the 53.64% of last financial year to the current 62.47%. In our opinion the management of International Breweries should pay keen attention to this ratio, as it holds the key to the profitability of the company
• Profit Margin on the other hand stood above comparable year’s by 23.75%
• Both Return on Average Equity and Assets are low as shown in the table below
• We hold mute on our score for the management of International Breweries due to the new changes occurring in the company. We are of the opinion that few other financials will be required for justification.

Efficiency Ratios
• Total Asset Turnover stood below the last audited estimate by 80.22% from 72.75% to 14.39%
• Equity Turnover though dropped against comparable year, remains attractive at 86.20%
• Confirming the above, Equity Multiplier stood high at 5.99x as against the 3.24x
• See below for other efficiency ratios

Investment Ratios
• Due to the drop experienced in the income statement, Earnings per Share dropped by 47.55% against last result. The current earnings is N0.17 as against the previous N0.32. Please understand that other factors responsible for this drop is the increase in the share outstanding of International Breweries as noted above
• Giving the high valuation on International Breweries share price by investors’ sentiments, the Earnings Yield was close to zero at 0.31% as against the previous estimate of 0.98%.
• Confirming the high sentiments at play on the share price of International Breweries, is the over bloated PE/Ratio of 327.16x from 101.66x.
• Also, the overpriced state of the stock was further established by the Price to Book Value of 11x from 7.57x, and the estimated Book Value of N4.93.

• Major consideration while placing value on the share price of International Breweries was its zero-dividend situation. Although the management promised better incentives for investor in the near future, we are of the opinion that until same is translated into realities into its figures, it remains in the future, hence our recommendation below.
Recommendation: In our opinion, International Breweries has worked very hard to position itself against market competition and taken time to ensure its survival. We hold out valuation in favour of the investors. Therefore, our valuation model has been set to consider a safe haven for investors. On the strength of the above, we have fairly placed each unit of International Breweries at N18.00.