By Imperial Asset Managers Ltd
12M-2019 Performance Review
Nigerian Breweries Plc late on Thursday, 13 February 2020 released its audited 12M-19 financial statement for the period ended 31 December 2019. The company became the second listed company to have released audited financials for year end-December 2019, only behind Infinity Trust Mortgage Bank Plc, and way ahead of SEC 60-day window (ending 30th of February) for the companies that opted for no. 2 option (i.e. release audited 12M financials within 60-day after the due date, against no 1 option that says release unaudited Q4 financials within 30-day after due date, and a subsequent release of audited 12M financials within 90-day after the due date).
Challenging business environment inhibits revenue growth
A close analysis of the results showed that revenue dropped marginally by 0.43% to ₦32.01 billion compared to ₦324.39 billion achieved in 12-18 months.
Note that Nigeria is the company’s primary market segment as over 99% of the revenue was made within the country, while exports only accounted for 0.06%. According to the company’s management, 2019 operations were adversely affected by the government increase of excise duty rates in late 2018 and the challenging operating environment. Other income heads are – other income line item, reported at ₦1.01 billion, 13.5% higher than the figure reported in 12M-18. Note that other income represents gains on disposal of scraps, property, plant and equipment, and insurance claims. Finance income was reported at ₦260.70 million, 27.9% lower than the figure posted in 12-18 months. Finance income was essentially interest income from bank deposits.
Mixed cost lines – headwinds to profitability
Recall that in order to mitigate the cost pressure due to government hike in excise duty rates in 2018, the company in April 2019, launched its second N100 billion Commercial Papers (CPs) programme, aimed at reducing its funding cost (cost management initiatives) and support short term funding needs. Four series (1, 2, 3 & 4) were successfully issued in 2019 with a total amount raised put at ₦30 billion. The series 5 and 5 were launched on the 3 February 2020 with a plan to raise ₦45 billion. However, a close analysis of the current performance showed that cost of financing is still a challenge to the company. Although the cost of sales (COS) plunged by 2.9% y/y, OPEX rose by 8.1% amid upside pressures on excise duty, advertising and sales promotion rates. Finance cost was equally a mouthful of challenges ₦7.74 billion cost of servicing loans and borrowings took 63.9% of the total finance cost. As such,the company’s liquidity ratio stood at0.52x (vs 0.58x in 12M-18).Hopefully, the current CPs series should be able to address some of these challenges.
Margins subdued but primed to thrive
Due to resurgence pressure on finance cost, bottom lines returns were significantly weak. Both PBT and PAT declined by20.6% and 17.1% to ₦23.4billion and ₦16.1billion respectively. As such, the two margins dropped to 7.2% (vs 9.1% in 12M-18) and 4.9% (vs 5.9% in 12M-18). As such, earnings per share (EPS) dropped to 201kobo y/y compared to 243kobo achieved in 12M-18.
Dividend yield to brighten shareholders’ lot
the board of Directors has indicated to reward shareholders with a Dividend per share of 151kobo. The qualification date is 4 March 2020. Note that an interim dividend of 50kobo was earlier paid in the third quarter (9M-19). The total dividend that will be paid for FY 2019 is ₦2.01, that is all the EPS achieved in the year. At the closing market price of ₦51.50 on Friday, 14 February 2020, a dividend yield of 3.90% is obtainable.
We place a HOLD recommendation
We have a price target (TP) of ₦55.00 per share on Nigerian Breweries. Comparing this TP to current price, it gives a thin upward potential of 6.8%. Based on the 12M-19 performance, we have subsequently placed a HOLD on NB. Note that NB is currently trading at a P/E ratio of 25.57x, and a P/BV of 1.23x.
Brief on Nigerian Breweries plc
NigerianBreweriesPlc was incorporated as a private limited liability Company on 16November 1946. The Company is a subsidiary of Heineken N.V. of the Netherlands, which held approximately56% interest in the equity of Nigerian Breweries Plc as of 31 December 2019. the principal activities of the Company remained brewing, marketing and selling of lager, stout, non-alcoholic malt drinks and soft drinks.
More equiries: research@imperialasset.com.ng
