Company: Nigerian Breweries Plc
Rating: Hold
Current Market Price: N129.70
Fair Value: N181.72
By: Jeariogbe Tunde Segun (Equity Analyst)
Key Financial Tickers
• This report examines the first three months (2018) financial activities report as released by the management of Nigerian Breweries Plc. For clarity and growth reasons, comparison we made to similar performance in the first quarter of 2017
• The result generally is a lower performance when compared with the same period of 2017, especially in the income statement account
• Nevertheless, the management were observed to have effectively controlled its financial expenses through the periods
• For the entire 2017 financial year, the company’s board paid an interim of N1.00, and a final dividend of N3.13, resulting in a N4.13 per share payout. This forms the back bone of our valuation of the brewing giant.
Brief History
• Incorporated in November 1946 as a limited liability Company, Nigerian Breweries became a public limited liability company and was listed on the Nigerian Stock Exchange (NSE) in 1973.
• Since its listing, the Company has grown by leaps and bounds. As at the time this report is being compiled, market capitalisation of NBL is N1.037 trillion.
• Through its subsidiaries (Heineken Brouwerijen B.V., Distilled Trading International B.V. and Heineken International B.V), Heineken N.V Group of the Netherlands holds majority shareholding of 55.37%, while 44.63% is held by private individuals and other institutional investors.
• The Heineken N.V. group is the world’s third largest beer manufacturer by volume with operations in more than 70 countries, producing notable international brands such as Heineken.
Corporate Figures
• Viewed five years back, Nigerian Breweries turnover has improved above the comparable year QoQ, but the current result dropped below similar period in 2017 by 9.12% from N91.288 billion to N82.966 billion.
• Similarly, the Profit before Tax of N15.249 billion is 12.56% below the N17.439 billion reported in 2017.
• This is just as Profit for the period (PAT) of N10.203 billion is 10.88% below the N11.449 billion in the first three months of 2017.
• The company’s investment in fixed assets within the two quarters under comparison in the report is mild as the Non-Current Assets grew marginally by 2.14% against comparable period of 2017 from N287.84 billion to N293.99 billion.
• The management also seem to be curtailing its long-term liabilities as Non-Current Liabilities only increased by 15.10% over what it reported in Q1-2017.
• The culture was equally extended to the firm’s short-term liabilities as the figure equally appreciated by marginal 3.08%.
• Giving the mild difference in both the Total Assets (6.06%) and Total Liabilities (5.81%) within the two financial periods being compared, the company’s Net Asset inched up by 6.34% from N177.42 billion to N188.67 billion.
Liquidity/Risk Ratios
• Theoretically, the share price of Nigerian Breweries can be said to be fairly more volatile than the market, this is established, given its 1.01 beta value. Please note that it also enjoys higher volatility above its industry peers.
• We have estimated 0.56x Current Ratio for Nigerian Breweries, which simply implies that short-term liabilities may keep facing delays. Nevertheless, it should be noted that this seems to be a common status in the sector where it operates.
• Far better than the industry peers, Nigeria Breweries possesses enough financial muscle to shoulder its interest-bearing liabilities. This was tested by estimating the Interest Coverage which gave us 4x, implying that it can take care of the interest four times the requirement.
Profitability Ratios
• Reflecting the underperformance status (at least based on comparable year’s figures), all profitability ratios stood below last year’s estimate. This position became more glaring since most of the balance sheet items only grew marginally
• Cost of Sales Margin was 54.18%, which was 2.28% below the 55.44% margin achieved in the first quarter of 2017.
• Both Profit before and after-tax Margin equally stood below similar period in 2017 by 3.79% and 1.94% respectively
• Return on Average Equity is currently 5.41%, this is 16.19% below the 6.45% achieved in 2017 first quarter financial performance
• Similarly, Return on Average Assets dropped to 2.57% from 3.06%, implying that the ratio dropped by 15.97% within the two quarters under comparison
Efficiency Ratios
• As in the profitability ratios above, efficiency ratios also reflected the low performance implied by the current financial statistics.
• Total Assets Turnover ratio dropped against comparable period of 2017. The ratio which dropped to 20.93% from 24.42% revealed an underperformance status up to 14.31%.
• Following the same trend, Equity Turnover dropped by 14.54% from the 51.45% estimated in 2017 to the current estimate of 43.97%
• Revealing a more controlled system, it was established that the company has maintained the use of Debt fairly above two times the Equity. This is commendable and could be used in rating the management of Nigerian Breweries higher.
Investment Ratios
• The amount earned per unit share of Nigerian Breweries is currently estimated at N1.28, this is 11.63% drop from the N1.44 earned in 2017 first quarter result. Please note that our estimate is based on the 7.996 billion shares outstanding of Nigerian Breweries.
• The said earnings yielded only 0.98% of the current market price of Nigerian Breweries shares when this result was made available to the investing public.
• Nevertheless, we have established improved investors preference for the company as the P/E Ratio improved from 21.47x to 25.41x an 18.37% improvement
• Going by the Book Value of N23.59, the company’s share price has been priced 5.49 times over what the book can account for. Please note that the Price to Book Value is currently 5.49x from 5.54x.
• Again, Operating Expenses Margin is reasonable enough, and has been watched closely as the ratio dropped by 1.94% against same period in 2017.
Valuation
In placing price tag on each units of Nigerian Breweries shares, we have considered its bi-annually dividend payment status, since we believe that this is a major attraction to its shares. In other words we used the N1.00 and N3.13 cash dividend paid at the end of 2017 financial year. Using 2-Stage H Model valuation method, we placed Nigerian Breweries share price at a conservative price of N181.72 each.
Findings
• We have discovered an efficient cost management in the financials of Nigerian Breweries. In our opinion, this established the sensitivity of the management to the financial status of the company. We also believe that the position may have been helped by the involvement of its mother company- Heineken N.V Group of the Netherlands.
• It is also glaring that the giant brewing company could not surpass its performance in the first quarter of 2017, the result has been rated underperform.
• Nevertheless, we confirmed that traders’ preference for the company improved over the period. This we believe could be linked to its constant payment of cash dividend, which has attracted higher percentage of long-term investors into positioning in its shares.
Recommendation
• Going by the above valuation and findings, we have Rated a Hold on Nigerian Breweries shares.
