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INTERNATIONAL BREWERIES PLC H1'22 Earnings Review - Q2 performance underwhelms

In its recent H1’22 Earnings results, International Breweries PLC showed a 25% y/y rise in Q2’22 Revenue to ₦53.9 billion. We believe that the growth was spurred by industry-wide increase in prices, especially in the Malt and Lager segments, and given Trophy’s market leadership in the Lager space, we consider this the headliner for the company’s Revenue growth. However, volumes came in lower q/q, as Revenue declined by 6% in the period. This highlights the tradeoff consumers are increasingly making as prices become too high to maintain previous demand levels. As such, whilst cost of sales declined by 1% q/q to ₦37.2 billion, gross margin dropped 400bps q/q to 31% in Q2 (Q1’22:35%), although higher than the Q2’21 comparable of 17%.

Nonetheless, International Breweries’ EBIT came in positive at ₦1.7 billion, compared to the ₦13.5 billion loss a year ago, although lower than the ₦3.7 billion EBIT reported in Q1’22. Incidentally, the driver of this gain was a net unrealized foreign exchange gain of ₦1.7 billion, which if stripped out, places the company in an operating loss position of ₦6.0 million. Recognizing net finance costs of ₦1.7 billion and a ₦0.4 billion tax charge, Q2’22 Loss before and after Taxes printed at ₦0.03 billion and ₦0.4 billion respectively. That said, the fairer Q1 bottom line performance saved the day, taking H1’22 PAT to ₦0.3 billion, a vast improvement from the ₦13.5 billion loss reported in the previous year.

For the second half-year, although demand is expected to be stronger due to festivities in the Q4 period, given the slight miss to our Revenue expectation, we are cautiously optimistic of a rebound in H2. As such, we maintain our Revenue forecast of ₦220.3 billion but cut our PAT estimate down to ₦1.3 billion (Previous: ₦4.0 billion). Overall, we value INTBREW at ₦5.46 per share and rate the stock a HOLD