EUR 4.00 For Business Accounts Only

Earnings Note| Nigerian Breweries | Q1 2022

• In the recently released financial scorecard of Nigerian Breweries Plc (NB), which stayed true to our expectation, we saw intensified improvement in Revenue, which grew 30.4% to ₦137.77bn in Q1 2022. This performance followed the path of its FY 2021 figure which grew 29.7% YoY to ₦437.29bn.
• Cost of Sales (adjusted for depreciation) continued its surge albeit a slower pace (15.1% YoY) to N72.53bn from N63.05bn in the corresponding quarter of 2021. Our findings of the constituents revealed that the Cost of Raw Materials continued its ascension (Up 17.35% YoY), but at a slower pace relative to Revenue. To provide colour, we observed that Raw Materials Consumed for every ₦100 Revenue dropped from ₦44.03 in Q1 2021 to ₦39.63 in the reporting period.
• In Q1 2022, we noted the significant surge (77.5% YoY) reported on Operating Expenses (adjusted for depreciation) to ₦33.10bn. Since 2021, we have observed a trend in Management’s strategy, which seemingly appears like a purposeful quest to create Top of the Mind Awareness (TOMA) for their products. In Q1 2022, the trajectory continued with the firm recording a 96.31% YoY rise in the advertisement expenses to ₦14.04bn from ₦7.15bn in Q1 2021.
• We noted that the firm obtained ₦43.30bn in Loans and Borrowing in Q1 2022, as opposed to a more conservative position (₦24.54bn) in Q1 2021. Nonetheless, it was still able to leverage the low interest environment to half its Finance Cost, save for the impact of foreign exchange losses which encumbered the development and slow down the savings recorded in Finance Cost position.
• Overall, we saw an improved Revenue performance based on upward pricing and volume increase setting the path for an exciting bottom-line performance. We had in our previous report stated this as a very important factor for the firm to actualize in its quest to consistently chart a path of steady and elevated profitability.
• In the light of the obvious improvements in performance, we have done an upward review of our target price from ₦57.92 to ₦63.43. We arrived at the target price using a mix of absolute and relative valuation methodologies.