Rating:
Short Term: Sell
Long Term: Watch
Current Market Price: N51.50
Final Cash Dividend: 1.50
Interim Cash Dividend: 50 kobo
Year High: N59.00
Year Low: N51.50
Fair Value: N18.99
Equity Analyst: Tunde Segun Jeariogbe

Introduction
• In this report, we observed the full-year financials of Nigerian Breweries Plc for the year ended, 31st December 2019, and compared the same with figures released in the corresponding period of 2018 to establish a growth trend, making recommendations accordingly thereafter.
• We observed certain differences in the numbers presented in the 2018 financial years and those with which the 2019 financials were compared, as stated below:
• The Turnover figure stated in the 2018 fully-year is N350.226 billion, which has now been restated in the current report as N324.388 billion.
• Non-Current Liabilities in the 2018 financial document was N81.738 billion before it was recorded as N72.023 billion.
• Current Liabilities Stated in 2018 report was N139.695 billion and has been restated as N149.410 billion.
• Note that we have used the currently stated numbers in our analysis, meanwhile, on the strength of these variations, we have rated Nigerian Breweries’ Earnings Reliability Low, as it is below unity.

Dividend Information
• The management proposed a N1.51 cash dividend, after paying an interim dividend of N0.50 for the half-year.
• The closure of registers is booked for 5th March to 11th March 2020.
• The qualification date is 4th March 2020, while the payment is 23rd April 2020.
• Annual General Meeting will hold at Shell Hall, Muson Centre, 8/9 Marina, Onikan, Lagos State, on 22nd April 2020.

Statement of Comprehensive Income
• Turnover dropped by 0.43% to N323.00 billion, as against the N324.38 billion in the corresponding year.
• Cost of Sales also slipped by a 2.90% margin to N191.75 billion, versus N197.48 billion in 2018 financial year.
• Operating Profit is currently estimated at N35.20 billion, same as 4.72% below the N36.95 billion stated in its 2018 financial performance report.
• Operating Expenses through the year is reported at N97.05 billion, fairly above the N9.83 billion used through 2018.
• Finance Cost during the year is reported at N12.11 billion, representing a 53.51% growth over the N7.89 billion stated in its 2018 financial report.
• Profit before Tax is estimated at N23.35 billion, the same as 20.63% below the N29.42 billion achieved at the end of the 2018 business session.
• Having accounted for N7.24 billion tax expenses (2019: N9.98 billion), the management of Nigerian Breweries reported a net profit of N16.10 billion for the year, which is 17.14% below the N19.43 billion achieved in 2018.
• Nevertheless, Total Comprehensive Income stood above that of the corresponding year by 6.93% at N19.21 billion, compared to the N17.96 billion reported in the prior year.

Statement of Financial Position
• Total Current Assets at the end of the 2019 financial year stood at N72.52 billion, same as 15.94% billion below the N86.28 billion valued in its 2018 financial report.
• Non-Current Assets is valued at N310.28 billion, compared to N301.97 billion at the end of the 2018 financial year.
• Current Liabilities stood at N139.52 billion, which is 6.61% below the N149.41 billion achieved at the end of 2018.
• Non-Current Liabilities was 4.82% above the 2018 valuation and currently stands at N75.49 billion against N72.02 billion.
• Net Assets stood at N167.74 billion, same as 0.55% above the N88.21 billion posted in its 2018 report.
• Retained Earnings is estimated at N89.38 billion, compared to N88.21 billion in the corresponding year.
Financial Strength
• Debt Ratio reveals that Total Liabilities is the same as 56% of the Total Assets Value. Investors should understand that this is still an acceptable ratio when compared to industry peers.
• In other words, Total Debt at the end of the year can replicate Equity 1.28 times, which is slightly below the 1.33 replicates in 2018. This signifies marginal growth in investor interest in the company through the year.
• Viewing financial strength from another angle, we observed that the Equity is the same as 44% of the Total Assets, which tallies with the Debt Ratio, confirming the inherent higher portion of the debt in the valuation of its assets.
• Standing above-market Beta, the shares of Nigerian Breweries is academically adjudged liquid, being slightly above industry peers.

Profitability Ratio
• EBITDA Margin is estimated at 10.90%, a marginal drop from the 11.39% estimated from its 2018 financials.
• Pre-Tax Margin equally stood below the previous year’s estimate at 7.23%, as against the previous 9.07%.
• Effective Tax Rate used through the two comparable periods was slightly stable as shown in the below table.
• The cost of Sales dropped appreciably to 59.37% from the previous 60.88%, this shows the management attempt at controlling the direct cost of running its operations through the year.
• The return achieved on Equity is fairly low at 9.60%. in our opinion, increased Finance Cost used through the period mainly accounted for the low returns.

Efficiency Ratio
• Operating Cost used through the period is 30.05% of the Turnover Figure, this is only a marginal improvement in the efficiency of about 7.30% over the corresponding year.
• Similarly, a marginal improvement of 0.99% was achieved when we tested the Turnover Figure against the estimated Total Assets value at the end of the two financial years compared in this report.
• Working Capital Turnover Ratio is negative for the two periods compared; this means that the liabilities that need to be paid within the two years compared exceeded the current assets that are monetizable over the same period. This is an indication that the company’s current liabilities is always on the high side.
• Agreeing with the above is the Working Capital Ratio/Current Ratio that stood below unity, implying the inability of the company to consistently offset its current liabilities with current assets whenever they fall due.

Investment Ratios
• Going by the difference in the share price of Nigerian Breweries within the two released periods, one can safely conclude that investors re-valued down its shares by 31.33% between the previous and current timeframe.
• Agreeing with investors position is the drop observed in the earnings per share from N2.43 to N2.01
• Total Comprehensive Income, on the other hand, grew by marginal 6.93% to stand at N22.400 as against N2.25.
• P/E-Ratio stood at 25.57x lower than the 30.86x, confirming reduced investors’ preference for Nigerian Breweries Shares.
• The said Earnings per share have a low yield of 3.91% on the share price, although this is 20.67% above the previous year’s yield.
• The estimated Book Value per share of Nigerian Breweries is N20.98 as against N20.86 in the corresponding year.
• Confirming an overvalued position and agreeing with our Intrinsic value for Nigerian Breweries share price is the Price to Book Value Ratio that stood above unity at 2.46x against 3.60x in the previous year.

Valuation
• With low earnings reliance, due to the observed variations in Nigerian Breweries key indices, coupled with a consistent drop in performance/returns over the years. Our blend of valuation tools projected lower returns for the giant breweries. Thus, we Valued the shares at N18.99and Rated it a Sell.