…While intense competition in the beer segment may constrain pricing power, we foresee mixed reactions to higher prices overall as brewers align with rising input and operating costs
TUE JAN 07 2025-theGBJournal| Similar to their peers in the Food and HPC segments, brewers faced macroeconomic challenges in 2024.
However, building on a low base from 2023FY, the brewers achieved a significant rebound in topline performance, with revenue rising by 82.9% y/y to N1.18 trillion in 9M-24, primarily driven by substantial price increases (c. +60.0% y/y).
Despite this, the combined cost of sales grew at a faster pace (+106.5% y/y). The rise in cost of sales is attributed to the higher naira cost of imported raw materials, such as Barley, following the currency depreciation, coupled with inflationary pressures on locally sourced inputs like Sorghum and packaging materials.
As a result, gross margins declined across the board, with GUINNESS (-19.14ppts y/y to 11.3%) seeing the sharpest contraction compared to NB (-844bps y/y to 29.5%) and INTBREW (-359bps y/y to 27.6%).
EBITDA margins also weakened across all brewers, including INTBREW (-26.4%, 9M-24: -2.4%), GUINNESS (Q1-25: -3.3% vs. Q1-24: 17.4%), and NB (-597bps y/y to 9.7%), with further pressures stemming from a 43.3% y/y increase in operating expenses driven by inflationary pressures and increased marketing activities.
Further down the line, brewers were burdened by substantial FX losses (+150.1% y/y to N316.57 billion) and higher finance costs (+181.0% y/y to N112.25 billion), reflecting the high-interest rate environment.
Consequently, NB’s loss per share widened significantly (N14.55| 9M-23: N6.89), while GUINNESS posted a loss per share of N5.55 (Q1-24 EPS: N1.19).
Meanwhile, INTBREW recorded a lower loss per share (N0.67 | 9M-23: NGN1.06), benefiting from an expanded share base (9M-24: 168.29 billion vs. 9M-23: 26.86 billion), which diluted the per-share impact of its higher post-tax loss during the period.
Cost and currency pressures may pose stumbling blocks: While intense competition in the beer segment may constrain pricing power, we foresee mixed reactions to higher prices overall as brewers align with rising input and operating costs.
As a result, we forecast a 45.3% y/y revenue growth for brewers in 2025E, driven by price hikes.
However, we remain cautious about a strong recovery in the brewers’ bottom line, as persistent supply chain disruptions and operational challenges are expected to continue driving input cost pressures.
These factors, compounded by global commodity price trends and exchange rate volatility, are likely to weigh on their performance going forward.
Nonetheless, we expect to see a gradual improvement in earnings for NB and INTBREW in light of the recent rights issues completed by both companies in 2024FY.
Accordingly, we forecast EPS of N2.14 for NB in 2025E (2024E loss per share: N10.38), INTBREW (0.69 | 2024E loss per share: N0.71).
Meanwhile, for GUINNESS, we forecast a lower loss per share of N5.55 in 2025E (2024FY: N25.00).-Analysis is provided by Cordros Research.
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