EUR 53.02 For Business Accounts Only

NIGERIAN BREWERIES PLC - Earnings drop in Q2 as interest charges spike

• ​NB reported a modest improvement in revenue for H1’16, growing 4% y/y to N157.4 billion. Looking at the Q2 performance (three month period) however revenue was down 2% y/y but rose 3% on a quarterly basis, underperforming Vetiva’s estimate by 7%. Notwithstanding, we are satisfied with this run rate from the brewing giant given that the period under review was trailed by several besetting challenges and a tougher operating environment. Whilst we have not seen the brand performance breakdown, we think volumes in the quarter would have struggled, with growth driven by price increase taken in Q1. Gross margin came in at 47% compared to 48% and 49% in Q1’16 and Q2’15 respectively. We believe this is as a result of higher cost of imported raw materials following the naira devaluation. 

• Whilst operating expense remained largely unchanged y/y, Net interest charges came in 188% higher y/y (significantly above our estimate) following a spike in interest expense to N8.6 billion in the period. This is not surprising following the naira devaluation which saw the naira fall steeply from NGN199/USD to about NGN282.67/USD in June. As such, despite the flat operating margin and lower effective tax rate of 25%, profit after tax came in 11% lower y/y at N19 billion, behind Vetiva’s estimate by 13%. We have revised our FY’16 revenue and EPS forecast to N313.5 billion (Previous: N318.9 billion) and N4.55 (Previous: N5.83) respectively. This takes into account the faster growing economy segment with lower revenue/hectoliters and narrower margins, and an overall slower growth for Nigeria’s beer market in 2016. Consequent to our earnings revision, our 12-month target price is lowered to N120.50, SELL (Previous: N143.20, BUY).