TUE, 29 DEC, 2020-theGBJournal- Cordros Securities analysts expect brewery stocks to record better volume growth in 2021FY, mostly due to the low base from 2020FY, but suggests that the ability of brewers to increase prices above inflation remains constrained
They also see surging inflation and FX illiquidity putting pressure on input costs and margins.
Brewers were significantly impacted by the lockdown in Q2 as on-trade (bars, clubs hotels) volume sales, which account for c.67% of beer sales, suffered a steep decline.
Cordros analysis of the Big 3 brewers showed that net revenue declined by a cumulative 32.1% y/y in Q2, the worst quarterly decline on record.
Noteworthy, however, was the strong recovery in topline Q3-20 (+21.8% y/y) as lockdown measures were eased, driven by the resilient volume performance of the premium segment, which includes premium larger (NB & INTBREW) and spirits (GUINNESS).
Despite the topline hit, surging inflation and FX illiquidity negatively impacted input and operating costs and as a result, margins deteriorated.
With the pandemic bringing about Nigeria’s second recession in 4 years, the coming year is expected to be characterised by an even weaker consumer wallet, further downtrading, and significant cost pressures.
‘’On downtrading, we expect to see a reversal in the mainstream segment as the population of middle-income earners continues to shrink,’’ Cordros wrote in their Nigeria in 2021 Review and Outlook.
Notably, the mainstream segment grew for the first time in at least five years in 2019, albeit marginally (+2.0%).
It is expected that brewers will to continue to drive their premiumisation strategies in order to improve product-mix and cushion the negative margin impact from the preceding. Overall, volume growth in 2021 should outperform 2020, due to the low base. Beyond that, however, volume growth is expected to be weak.
According to Cordros, the environment is not right for strong price increases on consumer discretionary products.
‘’However, we do expect brewers to take sub-inflationary price increases at intervals throughout 2021. NB has already stated that singledigit price increases are expected across key products in December, similar to last year. This should offer slight respite to topline. Overall, we are Underweight the sector.’’
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