FRI, 30 OCT, 2020-theGBJournal- Nigerian Breweries Plc (NB) has declared interim Dividend of 25 kobo per ordinary share of 25 kobo each following a stellar Q3-20 results.
The brewing giant said the interim dividend is subject to the deduction of the appropriate withholding tax will be paid to the Shareholders whose names appear in the Register of Members as at the close of business on 20th November, 2020.
The financial result published on Thursday shows a positive Q3 EPS (NGN0.17 vs Loss Per Share of NGN0.13 in Q3-19) for the first time since Q3-17, driven by a surge in revenue, and lower operating expenses.
Annualised, the achieved revenue is 6.5% behind consensus estimates for 2020E. However, the annualised 9M-20 EPS is broadly in line with consensus 2020E estimates (variance: -1.4%). On the 9M EPS of NGN0.87 (-43.5% vs. 9M-19), the board has proposed an interim dividend of NGN0.25/s (-50.0% y/y), implying a dividend yield of 0.5% on the last closing price of NGN52.00/s.
Net revenue grew by 25.6% y/y in Q3-20, driven mainly by a strong recovery in volumes following the gradual reopening of on-trade channels in Nigeria. Also, in addition to slightly higher product prices (c. 4% y/y), Cordros Research analysts noted that NB did not face any topline pressure from excise duty increases for the first time in three years (excise duty is flat at N0.35/cl in 2020).
In its Q3-20 trading update, Heineken NV (NB’s parent company) stated that in Nigeria, beer volume grew in the high-teens (c.16%-20%), ahead of the market, with the non-alcoholic portfolio growing in the mid-twenties and the premium portfolio growing by more than half. Sequentially, net revenue grew 19.8% q/q on higher volume, despite Q3 being a seasonally weak quarter.
Gross margin (+2bps) was flat at 37.5% in Q3-20, dampened by strong cost pressures from surging inflation and currency weakness.
‘’In our view, gross margin has remained resilient and the performance is indicative of the continued growth in the premium segment which has been positive, Cordros said.
Operating profit surged 948.9% y/y to NGN7.44 billion due to the growth in gross profit (+25.6% y/y), (2) the decline in operating expenses (-2.3% y/y), and the low base in Q3-19 (NGN709.65 million).
NB’s parent company has been implementing cost mitigation actions across all its local OpCos, which involves “reducing all discretionary expenses while providing sufficient support behind its brands and route to markets.” Consequently, marketing and distribution expenses declined by 7.8% y/y, bringing the total operating expense to revenue ratio down to 28.7% (Q3-19: 36.9%). EBITDA rose by 94.4% y/y equating to an EBITDA margin of 21.4% (13.8% in Q3-19). This implies an expansion of 756 bps in EBITDA margin.
Elsewhere, net finance cost (+66.1% y/y) hit a record high of NGN4.81 billion, as finance costs surged by 67.5% y/y. On finance costs, we note that the balance of bank overdrafts and commercial papers (NGN85,818 billion) in Q3-20 is significantly higher compared to Q3-19 (NGN29.61 billion) and Q4-19 (nil), following NBs NGN90.00 billion commercial paper issuances in February (NGN52.76 billion) and April (NGN37.36 billion) of this year. Though the detailed split of the company’s finance costs was not disclosed, we suspect that the company also recorded some FX losses due to exposure from its foreign currency denominated payables.
Despite the preceding, the operating profit strength drove EPS higher to NGN0.17 in Q3-20 (Q3-19: -NGN0.13)
Cordros in their assessment said, ‘’the growth is quite impressive and shows that the company is best-positioned amongst its peers to recover strongly from the pandemic-hit year, and brave the current macroeconomic headwinds. With the share price down 11.6% YTD, positive earnings and a dividend offered, we expect a positive reaction. Our estimates are under review.’’
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