NB NL | Nearing the bottom of the barrel

Nigerian Breweries' (NB) Q3'19 revenue (before excise tax) grew 2.6% y/y due to low, single-digit volume growth. However, a 31% increase in excise duty expense resulted in net producer revenue (NPR) remaining flat y/y. Positively, cost of goods sold (COS) declined 12.4% y/y, resulting in a GP margin expansion of 9pp. Despite an improvement in operating profit, NB has been forced to increase marketing and distribution spend (+14.3% y/y) to try rebuild brand equity and stem the loss of market share, resulting in operating costs increasing 5.8% y/y. NB's increase in operating costs, together with the increase in net debt (NGN70bn versus FY'18: NGN26bn) raises concerns around the Group's ability to grow earnings over the next three years. Given the above-mentioned risks and the current, weak macro environment, we expect FY'19 earnings to disappoint and therefore downgrade our recommendation to a SELL.


However, we note that continued volume and top line growth in FY'19 results could signal a positive turnaround for NB.