Company Analysis

NBPLC: Time For Strategy Review Amid Shrinking Margins, Bloating OPEX


Rating:  Short Term: Sell

Long Term: Watch

Current Market Price: N52.00
Final Cash Dividend: N0.69

Interim Cash Dividend: N0.25k

Year High: N63.00
Year Low: N52.00
Fair Value: N18.96
Equity Analyst: Tunde Segun Jeariogbe

Introduction

  • This report observed the full-year financials of the giant brewer for the year ended, 31st December, 2020, compare same with figures released in the corresponding year (2019) to establish growth and make recommendations accordingly.
  • The result generally is a lower performance when compared to that of prior full year (2019).
  • It is important to note that this had been the trend of company’s performance over the past eight years, hence the need for review of the business model to ensure its long-term sustainability.
  • We note also that after 2013 when the company grew its full-year earnings from N38.042 billion to N42.520 billion, profit reported have recorded a consistent drop.
  • In other words, the N42.520 billion reported in 2013 remained the company’s peak earnings till date, despite the fact that Turnover continue to record marginal improvements since 2013.
  • We also observe that the management of Nigerian Breweries has consistently reported higher rate of direct cost YoY.
  • On the strength of the above, we linked the downward performance indices to the followings;
    • High cost of funds
    • Insurgency and insecurity levels across the country
    • High cost of generating power
    • Stiff competition among industrial peers
    • Naira devaluation/spiralling importation cost
    • Poor/decayed infrastructure
    • Fallout of Covid-19 pandemic

Dividend Information

Source: Company data, NSE, Investdata Research
  • The company’s board proposed a N0.69 final cash dividend (as against N1.50 in the corresponding year), having paid an interim dividend of N0.25 (N0.50 in the corresponding quarter).
  • The closure date for the Registrars’ book is 11th and 12th of March, 2021.
  • Qualification date was 10th March, 2021.
  • Payment date is 23rd April, 2021.
  • Annual General meeting will be held at Shell Hall, Muson Centre, 8/9 Marina, Onikan, Lagos State, on 22nd April, 2021.
Source: Company data, NSE, Investdata Research

Statement of Comprehensive Income

  • Turnover improved by a marginal 4.35% to N337.04 billion, as against N323.00 billion in the corresponding year (2019).
  • Cost of Sales equally grew by a marginal 13.87% to N218.35 billion, versus N191.75 billion in 2019.
  • Operating Profit is currently estimated at N29.60 billion, same as 15.91% below the N35.20 billion stated in its 2019 financial performance report.
  • Operating Expenses through the year is valued at N89.91 billion, 7.35% below the N97.05 billion used through 2019.
  • Finance Cost used through the year is valued at N18.27 billion, which is 50.85% more than the N12.11 billion reported in its 2019 financial report.
  • Profit before Tax is estimated at N11.57 billion, same as 5.043% below the N23.35 billion achieved at the end of 2019 business session.
  • After considering the N7.36 billion tax expense (2019-N7.24 billion), the management of Nigerian Breweries reported N7.36 billion as the Profit for the year, which is 54.25% below the N16.10 billion achieved in 2019.
  • Similarly, Total Comprehensive Income stood below the corresponding year by 64.99% at N6.72 billion, versus N19.21 billion in 2019.
Source: Company data, NSE, Investdata Research

Statement of Financial Position

  • Total Current Assets at the end of the 2020 financial year stood at N93.19 billion, same as 28.49% below the N72.52 billion valued in its 2019 financial report.
  • Non-Current Assets is valued at N352.66 billion, as against N310.28 billion at the end of 2019 financial year.
  • Current Liabilities stood at N210.46 billion, 65.04% above the N127.52 billion achieved at the end of 2019.
  • Non-Current Liabilities is 15.19% below the 2019 valuation, valued at N74.21 billion, as against N87.49 billion in 2019.
  • Net Assets stood at N161.17 billion, same as 3.92% lower than the N167.74 billion posted in its 2019 report.
  • Retained Earnings is estimated at N83.09 billion against N89.38 billion in the corresponding year.
Source: Company data, NSE, Investdata Research

Financial Strength

  • Debt Ratio revealed that the Total Liabilities is same as 63.85% of the Total Assets Valuation, which is still an acceptable ratio, when compared to those of those of those of those of industry peers
  • In other words, Total Debt at the end of the year can replicate Equity 1.77 times, slightly below the 1.28 replicates in 2019. This signifies marginal growth in investors’ interest in the company through the year
  • Viewing financial strength from another angle, we observed that the Equity is same as 36.15% of the Total Assets, this agrees with the Debt Ratio, confirming higher a portion of debt in the assets valuation.
  • Standing above market Beta, the shares of Nigerian Breweries is academically liquid and slightly above its industry peers in patronage.

Profitability Ratio

  • EBITDA Margin is estimated at 8.78%, the same as a 19.41% drop from the 10.90% estimated in its 2019 financials.
  • Pre-Tax Margin equally stood below the previous year’s estimate at 3.43%, as against the previous 7.23%.
  • Cost of Sales rose marginally to 64.78%, from the previous 59.37%, thereby confirming the increasing direct cost of running the business YoY.
  • The return achieved on Equity is low at 4.57% compared to 9.60% in the corresponding year.
Source: Company data, NSE, Investdata Research

Efficiency Ratio

  • Operating Cost used through the year is same as 26.68% of the Turnover Figure, this is only a marginal improvement in efficiency of about 11.21% over the corresponding year
  • Similarly, a drop in efficiency of 10.41% resulted when we tested 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 liability 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 when due
Source: Company data, NSE, Investdata Research

Investment Ratios

  • Going by the marginal difference in the share price of Nigerian Breweries within the two periods, one can safely conclude that investors were indifferent within both release periods.
  • Nevertheless, in sharp disagreement with investors position is the huge drop recorded in the earnings per share from N2.01 to N0.92
  • Total Comprehensive Income on the other hand dropped by 64.99% to N0.84, as against N2.40.
  • P/E-Ratio stood at 64.03x far above the 25.57x, stating the increase in investors’ preference/sentiments for Nigerian Breweries Shares.
  • The said Earnings per share have a low yield of 1.56% on the share price of Nigerian Breweries on the floor of the exchange as at the time the result was made available to the investing public.
  • The estimated Book Value per share of Nigerian Breweries is N20.16 as against N20.898in 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 2.93x against 2.46x 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 N18.96 and Rated it a Sell.
Source: Company data, NSE, Investdata Research

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