MON, FEBRUARY 19 2018-theG&BJournal-Analyst at CORDROS Capital maintained sell ratings on Nigeria Breweries Plc after their Q4 earnings for the period and year ended 31 December 2017 fell below expectations.
For the year end, net sales and earnings grew 9.8% and 16.3% respectively. Q4-17 net sales declined 1% y/y while net earnings grew by 9% but 24% behind estimate for the period. Management discussed the results with investors/analysts in a conference call on Friday.
”Following the result, we cut 2018-2019F EBITDA and net profit forecasts by 3% each, reflecting mainly the downward revision of gross margin estimates, Christian Orajekwe of CORDROS CAPITAL said in a note made available to theG&BJournal.
” We also cut TP to NGN109.75 (previously NGN123.16) and maintain SELL rating. On our estimates, NB currently trades on 2018F P/E and EV/EBITDA multiples of 24.4x and 10.2x respectively, relative to MEA peer averages of 22.4x and 9.5x respectively,” he added.
Nigeria Breweries say the country’s double digit inflation impacted the business and consumer but declared N33 billion divided over the weekend
Sales revenue expectations for 2018F was however is raised by as much 200bps to 7% taking into consideration potential price hike in the wake of the recently proposed excise tariff increase.
”Management is of the view that it will evaluate the impact of the proposed tariff model on cost, and “certainly” pass them on to consumers, should the need arise,” says Orajekwe while explaining their firms positive view on NB’s sales growth prospect.
According to him, outlook for 2018 is cautious from macro view point, and amidst a more intense competitive environment. But whilst the economy (new mainstream) segment is expected to continue to underpin group volume, management however did acknowledge signs of moderating consumer down-trading, specifically confirmed by Heineken’s (an international premium brand) return to growth.
Gross margin estimate for 2018F however is cut 100 bps lower to 43%, following the miss in Q4. Although the margin improved – relative to Q3 – in the period to 41%, it was lower compared to both Q4-16 (-87 bps) and our 45% estimate.
”Notwithstanding the moderating inflation and stable FX outlook, management did not sound convincing to us vis-à-vis material improvement in gross margin in 2018F. Our EBIT margin estimate was equally lowered to 18% (previously 18.95%),” says while Orajekwe reflecting on the conference call by NB management last Friday with investors and analysts.
He said the management does not anticipate FX-related losses in 2018F(-33% in 2017FY to NGN5 billion), given the sizeable clearance of USD-denominated trade payables in 2017, and the expectation of continued healthy FX liquidity. FX risks are also being mitigated using funded letters of credits and participation in CBN interventions via forward contracts.
NB has issued NGN57 billion out of its NGN100 billion commercial paper program. Gross debt was NGN8.5 billion as at December 31, and while we expect new CP issuances in the year, we have modeled interest expenses to halve in 2018F, on expected reduced working capital pressure and lower interest rates.
The NB Board announced a N33 billion profit after tax (PAT) for 2017 on a revenue of N344 billion over the weekend. This represents a 16% increase in Profit after tax from N28.4 billion in 2016 and a 10% growth in turnover from N313 billion in the corresponding period.
According Mr. Uaboi Agbebaku, NB Company Sectary and Legal Adviser, “whilst the foreign exchange situation improved in the course of the year, double digit inflation continued to impact both businesses and consumers. Nevertheless, the company was able to end the year with improved results through continuous focus and execution of the twin agenda of cost leadership and market leadership supported by innovation.”
