NIGERIAN BREWERIES PLC - Bearish on FY’18 beer volumes, revenue

Bearish on FY’18 beer volumes, revenue                                                                            

Nigerian Breweries (NB) recently released its Q1’18 financial statements showing a 9% y/y Revenue decline to ₦83.0 billion, weaker than the ₦86.5 billion we had expected. Beer volumes reportedly declined high single digit as intense competition in the space amidst still tepid beer demand continued to weigh on volumes. Parent company, Heineken International also stated that the weaker beer numbers were partly driven by some destocking at the distributor level – a worrying sign for demand for NB’s products. Further supported by sustained cost control, Q1’18 operating profit came in 12% higher than we had expected at ₦17.4 billion albeit still underperforming on a y/y basis – down 8%. On the other hand, driven by foreign exchange losses on dollar denominated trade payables, NB reported net finance expense of ₦2.4 billion, 63% and 37% higher than our estimate and Q1’17 figures respectively. As such, Q1’18 net profit printed 11% weaker than the same period in the prior year, at ₦10.2 billion (Vetiva: ₦9.7 billion).                 

Whilst we revise our gross margin estimate 100bps higher to 44%, we maintain our OPEX forecast at ₦88.1 billion. Furthermore, given the higher than expected ₦1.5 billion foreign exchange loss recorded in Q1’18, we have revised our FY’18 FX loss assumption to ₦4.0 billion (Previous: ₦3.0 billion, FY’17: ₦5.0 billion). Supported by a downward review to our FY’18 tax rate (from 32% to historical average of 30%), our FY’18 profit after tax forecast is revised to ₦39.6 billion (Previous: ₦42.2 billion) – translating to a 20% y/y PAT rise. Our 12-Month Target Price is revised lower to ₦130.68 (Previous: ₦149.36), thus we revise our rating on the stock to a HOLD.