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Price increases boost gross margin

Pricing increases elevate topline
In the fourth quarter of 2023, International Breweries demonstrated a substantial 38% y/y growth in revenue, reaching ₦80.5 billion. This impressive increase was due to higher prices across the firm’s product lines. While INTBREW has maintained its lowest price strategy, its products’ prices significantly rose in FY’23 due to the inflationary environment. These higher prices helped improve the firm’s gross margin to 18% in Q4’23 (Q4’22: 11%) as cost of sales rose slower at 27%. 

Bottom-line woes compounded by other costs
Building up on the impressive topline in Q4’23, OPEX fell by 22% y/y to print at ₦15.1 billion. However, this was unable to prevent the erosion of gross profits for the period (₦14.4 billion). Further compounding its losses was FX volatility that caused a further downturn in its EBIT to a ₦35.8 billion loss in Q4’23 (Q4’22: ₦23 billion loss). 
In addition, finance costs grew by 165% y/y to hit ₦9.5 billion during the quarter. Thus, the bottom-line came in lower at a ₦33.8 billion loss for the period (Q4’22: ₦22.7 billion loss) even after recognising a ₦10.3 billion tax credit. This negative bottom-line was majorly responsible for sending FY’23 loss to ₦59.5 billion (FY’22: ₦21.6 billion loss).

Earnings outlook
We expect improvements in the financial results of INTBREW in FY’24 due to expected price increases, a slower pace in growth of OPEX and trimming of FX losses. Thus, we expect INTBREW to make a FY’24 revenue and bottom-line loss of ₦310 billion (+17% y/y) and ₦52 billion respectively. Our revised projections for the company yield a target price of ₦5.90 on the stock. Thus, we rate the stock a HOLD.