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NIGERIAN BREWERIES PLC - H1’17 EPS up 25% y/y as FX losses moderate

NIGERIAN BREWERIES PLC                                                         

H1’17 EPS up 25% y/y as FX losses moderate                                      

Contrary to our 6% q/q revenue growth estimate, NB recorded a 2% q/q decline in Q2’17 amidst slightly weaker than expected volume roll-out in the quarter. Nonetheless, revenue for the half year was up 15% y/y to ₦181 billion amidst stronger average selling prices. With consumer sentiment unchanged, we expect that mainstream beer brands would have retained a higher proportion of total volumes sold within the period. Gross margin for H1’17 came in strong at 45%, 100bps higher than our estimate and Q1’17 figure of 44%. Amidst the brewer’s dedicated cost savings program, operating expenses (OPEX) continues to chart a different path, with OPEX to sales ratio declining 141bps y/y to 24% in H1’17. Earnings were further supported by a surprising surge in Other income (H1’17: ₦1.8 billion vs. H1’16: ₦0.3 billion).

Further helped by much lower FX losses in H1’17, net finance expense moderated 37% y/y in H1’17 to ₦5.3 billion, albeit this figure came in 45% higher than our estimate as we had expected the more stable FX environment in Q2’17 to keep a lid on FX losses. Whilst revenue growth fell below our expectation in Q2’17, we are optimistic for better volume performance in the latter part of the year and as such retain our FY’17 revenue estimate at ₦346 billion. Also, with gross margin consistently bettering our estimate, we revise FY’17 gross margin estimate slightly higher to 44.5% (Previous: 44.0%). Following an upward revision to both our Other income and net finance expense estimates, our FY’17 EPS is revised 2% higher to ₦5.69 (Previous: ₦5.58). We revise our 12-month Target Price to ₦120.72 (Previous: ₦115.40).                                        

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 54% controlling stake in the larger entity. NB dominates Nigeria’s brewery market with a 65% market share and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks, ready-to-drink and bitters brands.