MON, APRIL 24 2018-theG&BJournal-NB published its Q1-2018 result yesterday, showing revenue contracted at single-digit and finance charge increased at high double-digit y/y. Both outweighed the improvement in gross profit margin and the decline in opex, resulting in PBT and PAT coming short by 13% and 11% y/y respectively. Compared to Q4-17, PBT and PAT grew by 25% and 13% respectively – notwithstanding revenue contraction of 8% – on higher gross margin and lower opex and net finance charge. The EPS of NGN1.28 was lower than consensus by c.10%.
Revenue was lower 9% y/y and 8% q/q, and by 10%, compared to analysts estimate. The decline, despite lower base price, is clearly indicative of lower volume outturn during the period. Consistently, for two quarters, NB has now reported y/y decline in revenue, mainly attributed to volumes.
In its Q1-18 trading update, Heineken N.V. (NB’s parent company) said it experienced high single-digit decline in beer volume in Nigeria, partly due to some de-stocking at the distributor level.
“That aside, we should also reiterate the increasing competition – and consequently, pressure on market share – that NB faces (especially the hitherto volume-supportive economy/new mainstream brands) with the growing national presence of INTBREW. We are encouraged by the lower Q1 revenue to retain our conservative 7% growth estimate for 2018E, says analysts at CORDROS CAPITAL.
Gross profit margin increased 126 bps y/y and 481 bps q/q to 45.8%, although below the 46.9% we estimated for the quarter. The margin is NB’s highest since Q2-16, but still at an obvious discount to the pre-2016 average of c.50%.
NB’s management had said during the 2017FY call, that the focus of its cost leadership programme is on achieving efficiencies and optimization, including through the right balance of imports and local sourcing of raw materials.
There has been marked softening in the price of local sorghum thus far this year, especially in February and March. On our estimate, the price of barley (-11% YtD and -6% y/y in Q1-18) is also relatively lower compared to last year, and importantly, the naira has been stable.
‘According to Cordros Capital, the improved gross margin is consistent with our positive outlook for 2018E (43% vs. 41.7% in 2017FY), even as we consider the traditionally weak Q3 margin.
“We maintain our SELL recommendation at TP of NGN107.25 (previously NGN109.75) even as we slightly revise our estimates. On our estimates, NB currently trades at FY18E P/E and EV/EBITDA multiples of 26.2x and 10.3x respectively.”
