EUR 56.22 For Business Accounts Only

NIGERIAN BREWERIES PLC - Record low Q3 profits as margins moderate

• As expected, sales momentum slowed in the third quarter of the year, down 18% q/q but within 5% of our estimate. Whilst Q3 is usually the slowest quarter of the year, we believe volumes must have declined significantly given that price increase of about 11% - 12% was taken across 80% of the entire product portfolio on the 1st day in September. Year-on-year revenue growth for the 9M’16 period however remained steady at 4% (H1’16: 4% y/y), a 1% underperformance to our estimate. Whilst we believe volumes have reacted adversely to the c.17% price increases since the start of the year, we do not think management will roll-back prices just yet as the company struggles to protect margins from rising costs and given that major competitors have followed the market leaders’ pricing actions.
• Although Q4 is the peak selling season for NB (Yuletide period), we believe price increases will cap the usual volume growth recorded in this period – particularly in the premium segment as consumer down trading persists. Given this, we have revised our revenue estimate lower to ₦306 billion (Previous: ₦316 billion). We have also revised our FY’16 operating margin estimate to reflect the spike in cost of sales in Q3’16 and higher OPEX to sales. As we stated earlier in our Nigeria outlook report, Seeking a Winning Formula, we believe FX losses in FY’16 will come to ₦7.6 billion (H1’16: ₦6.3 billion) amidst sustained weakness in the currency. Our FY’16 EPS estimate is revised lower to ₦3.05 (Previous: ₦4.61). With a 95% payout ratio, we forecast a final dividend per share (DPS) of ₦2.90 bringing total FY’16 DPS to ₦2.90. Our target price is revised lower to ₦113.96 (Previous: ₦117.18).