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INTERNATIONAL BREWERIES PLC 9M'22 Earnings Release - Excise duties take a toll on earnings

In its recently released earnings results, despite favourable pricing, International Breweries reported only a 6% rise in Revenue, which when compared to the 36% y/y average growth seen in H1 showed the heavy impact of excise duties on the company’s topline. However, cost of sales grew by 14% y/y to ₦38.7 billion, dragging gross profit 18% lower y/y to ₦12.6 billion and gross margin 6ppts and 10ppts lower to 21% from 27% in Q3’21 and 31% in Q2’22. Even though operating expense remained stable y/y, the increase in impairment charges and other expenses pushed the company to an operating loss of ₦3.9 billion in Q3. Accounting for a net finance expense of ₦0.7 billion (+46% y/y), the company’s loss before tax worsened to ₦4.7 billion and with a tax credit of ₦1.5 billion, loss after tax came in at ₦3.1 billion, from a PAT figure of ₦2.2 billion in Q3’21.

Moderated by the Q3 performance, IntBrew’s Revenue grew by only 25% y/y to ₦160.4 billion in the 9M period. That said, the company’s gross margin came out stronger y/y at 29% compared to 22% in 9M’2, with gross profit printing 68% higher y/y at ₦47.0 billion. Furthermore, EBIT turned around from a ₦15.9 billion loss in 9M’21, to a ₦1.5 billion profit propped by the growth in gross profit. However, the company’s still elevated debt balance remains a pressure point, raking in a 3x increase in finance expense in the period, prompting a ₦2.8 billion before tax loss (9M’21: 15.9 billion).

In Q4, while volumes are expected to improve q/q, excise duties are likely to remain a headwind to net Revenue. More so, with gross margins so low and operating costs expected to trend higher from increased energy costs, the company’s profitability remains threatened. As such, we expect Revenue to print at ₦217.6 billion (+19%), with Loss after Tax estimated at ₦6.4 billion (-64% y/y) for the full year. All in, we estimate a one-year target price of ₦5.15 per share and rate INTBREW a HOLD.