NIGERIAN BREWERIES PLC - Thoughts from the Lagos Brewery Tour

Thoughts from the Lagos Brewery Tour                                                                

Nigerian Breweries held a 2017 Financial Market Forum on the 14th of September 2017, where the new CEO. Johan Doyer and the Finance Director Mark Rutten hosted a management presentation on the company’s operations and later treated analysts to a tour of the Iganmu-based Lagos Brewery. Whilst the event gave a fresh angle to the evolving dynamics in the beer market from NB’s perspective, the event did not produce any substantial changes in our view of the beer giants’ business. As such, we make no estimate changes in this note and we retain our 12-month Target Price of N120.72.                                                                        

NB recorded 15% y/y growth in revenue in H1’17. This rise was solely driven by earlier price increases given that beer volumes in the period declined mid-single digit y/y. Despite this, the company has stated it implemented further price increases across select brands at the start of Q3’17 in a bid to shore up margins amidst sustained local input cost pressures. Also, we had highlighted the surge in Other Income (H1’17: N1.8 billion vs. H1’16: N0.3 billion) in our H1’17 earnings note “H1’17 EPS up 25% y/y as FX losses moderate”; management has attributed this partly to the insurance compensation claims received following the fire incident at the empty crates storage facility of the Lagos brewery.                                                                               

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 an estimated 65% market share as at 2015 and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks, ready-to-drink and bitters brands.