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NIGERIAN BREWERIES PLC - FY'16 EPS beats estimates but slips y/y

• NB recorded an impressive performance in Q4’16 as PAT for the three month period at N8.3 billion printed almost eight times higher than the Q3. Revenue grew 39% q/q to ₦91 billion (Vetiva: ₦83 billion), outperforming the historical average quarterly growth of 33% during the festive season. Whilst we believe growth was aided by higher volume roll out within the quarter (in line with historic trend), we think price increases may have played a big part given the notable improvement in gross margin within the period (Q4: 42%, Q3: 36%). Despite the c.20% average price increase and low single digit volume growth recorded during the year, revenue for FY’16 rose 7% y/y - below the 5-year average revenue growth rate of 10%. We believe this reflects the effect of a change in NB’s product mix wherein less expensive products (economy and mainstream) now contribute a higher percentage to total volumes sold.
• Following the 55% currency devaluation in 2016, NB has been exposed to adverse effects of transactional foreign exchange losses. Although PAT declined 25% y/y to ₦28 billion, the bottom line came in ahead of Vetiva’s ₦24 billion forecast. The Board of Directors has recommended final dividend of ₦2.58/share, bringing total dividend to ₦3.58/share (98% earnings payout and ahead of our ₦2.70/share estimate). Whilst we look forward to the Investor/Analyst Conference slated for 2nd March 2017 for further guidance on 2017 from Management, we anticipate NB’s mainstream and economy segment to remain up-weighted in the overall brand portfolio. Given the brewer’s foreign currency exposure, we forecast ₦2 billion FX loss in 2017 assuming milder currency depreciation in the year. We expect NB will report FY’17 EPS growth of 11% to ₦3.98 (Prev: ₦5.30, FY’16: ₦3.58). Given our more modest outlook for 2017, our Target Price is revised slightly lower to ₦111.57 (Prev: ₦113.56).
• 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 52% 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, ready-to-drink and bittters brands.

• NB recorded an impressive performance in Q4’16 as PAT for the three month period at N8.3 billion printed almost eight times higher than the Q3. Revenue grew 39% q/q to ₦91 billion (Vetiva: ₦83 billion), outperforming the historical average quarterly growth of 33% during the festive season. Whilst we believe growth was aided by higher volume roll out within the quarter (in line with historic trend), we think price increases may have played a big part given the notable improvement in gross margin within the period (Q4: 42%, Q3: 36%). Despite the c.20% average price increase and low single digit volume growth recorded during the year, revenue for FY’16 rose 7% y/y - below the 5-year average revenue growth rate of 10%. We believe this reflects the effect of a change in NB’s product mix wherein less expensive products (economy and mainstream) now contribute a higher percentage to total volumes sold.
• Following the 55% currency devaluation in 2016, NB has been exposed to adverse effects of transactional foreign exchange losses. Although PAT declined 25% y/y to ₦28 billion, the bottom line came in ahead of Vetiva’s ₦24 billion forecast. The Board of Directors has recommended final dividend of ₦2.58/share, bringing total dividend to ₦3.58/share (98% earnings payout and ahead of our ₦2.70/share estimate). Whilst we look forward to the Investor/Analyst Conference slated for 2nd March 2017 for further guidance on 2017 from Management, we anticipate NB’s mainstream and economy segment to remain up-weighted in the overall brand portfolio. Given the brewer’s foreign currency exposure, we forecast ₦2 billion FX loss in 2017 assuming milder currency depreciation in the year. We expect NB will report FY’17 EPS growth of 11% to ₦3.98 (Prev: ₦5.30, FY’16: ₦3.58). Given our more modest outlook for 2017, our Target Price is revised slightly lower to ₦111.57 (Prev: ₦113.56).
• 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 52% 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, ready-to-drink and bittters brands.