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NIGERIAN BREWERIES PLC - Expected rebound in Q4 seals FY'17

Expected rebound in Q4 seals FY’17                                                                        

A significant improvement from the dismal numbers reported in Q3’17, Nigerian Breweries released its FY’17 financial results showing a much expected recovery across most line items in the Q4’17 period. Top and bottom line came in 10% and 16% higher y/y respectively, both printing in line with Vetiva’s estimate. Despite moderating inflation (Dec 2016: 18.6% vs. Dec 2017: 15.4%) and relatively stable currency, NB struggled to contain costs – particularly in the second half of the year. Though operating profit margin improved to 16% in Q4’17 (from the 4% slump in Q3’17), the figure remained below the 21% margin recorded in H1’17. Overall, despite a 73bps contraction in FY’17 operating profit margin, EBIT rose 8% y/y to ₦57 billion – 2% below our estimate. FY’17 earnings was however boosted by a 21% y/y decline in net finance expense amidst lower foreign exchange losses (₦5.0 billion vs ₦7.6 billion in FY’16).                                                                      

FY’17 PAT came in largely in line with our estimate at ₦33 billion – representing a 16% y/y increase. The Board of Directors declared a final dividend of ₦3.13 (Vetiva: ₦3.06), making total FY’17 dividend of ₦4.13 – translating to a 3% dividend yield and 100% dividend payout ratio for the third consecutive year. Driven by sustained recovery in consumer demand and an expected rebound in sales volumes, we forecast a modest 9% y/y revenue growth to ₦376 billion given heightened competitive terrain. The strongest earnings boost for the year is however expected to come from a material moderation in net interest expense – 38% y/y decline expected as FX losses fade. Overall, we forecast a 28% y/y rise in PAT to ₦42.2 billion in FY’18. Having rolled forward our model to FY’22, our 12-Month Target Price is revised marginally higher to ₦149.36 (Previous: ₦146.51).                                                                            

Nigerian Breweries Plc (NB) is the largest brewer in Nigeria and the second largest listed company on the Nigerian Stock Exchange. Following the merger with Consolidated Breweries effective December 2014, parent company, Heineken maintains a 53% controlling stake in the larger entity. NB dominates Nigeria’s brewery market with a c.60% market share and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks and ready-to-drink brands.