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NIGERIAN BREWERIES PLC H1'20 - Revenue strain persists amid pandemic pressures

Nigerian Breweries recently released its Q2’20 results, reporting a 17.5% q/q slump in topline to ₦68.7 billion. Despite a better than expected performance amid a significantly tougher operating environment, (Vetiva estimate: ₦43.5 billion, -47.8% q/q) the weaker Q2 performance took H1’20 Revenue to ₦151.9 billion, a 10.8% step-down from its H1’19 performance. We believe that in the quarter under review, the implementation of lockdown measures following the onset of the pandemic combined with pressured income levels slowed down beer consumption drastically. Furthermore, post-lockdown, social distancing has ensured that this trend of reduced beer volumes remained. Taking into consideration that the phased increases in excise duty has ended, with the last increment in July 2019, the company should see some respite with respect to the impact on Net Revenue this year. However, despite the topline beat, we still maintain that the company’s revenue strength remains compromised and expect that the line item would come in at ₦292.7 billion, a 9.4% y/y decline, owing to depressed income levels and the impact of social distancing measures on alcohol consumption.

We adjust our full year estimates for cost of sales to reflect the H1 run rate, forecasting a 17.0% drop in gross profit to ₦108.9 billion while adjusting operating expenses to account for increased energy costs. On the other hand, the company’s debt holding has seen a 1.5x increase since the beginning of the year, majorly through short-term debt. Thus, we expect to see more commercial paper refinancing as the short-term debt obligations become due, as well as a 9.4% y/y jump in finance costs to ₦13.2 billion. We project a PAT of ₦12.8 billion for FY’20 (-20.8% y/y). We value NB at ₦43.45 and revise our recommendation to a BUY.