April 24, 2018/FBNQuest Research
Event: Nigerian Breweries reports Q1 2018 results
Implications: Neutral reaction expected from the market
Positives: Gross margin expanded 126bps y/y
Negatives: PBT and PAT down -13% y/y and -11% y/y respectively
Late yesterday, Nigerian Breweries (NB) published its Q1 2018 results which showed that sales of N83.0bn declined by -9% y/y. PBT and PAT declined by -13% y/y and -11% y/y to N15.2bn and N10.2bn respectively. Although operating expenses declined by -5% y/y and gross margins expanded by 126bps y/y, these were offset by the sales decline, and a 37% y/y rise in net finance charges, leading to the weaker PBT.
On a sequential basis, sales declined by -8% q/q. However, PBT and PAT advanced by 25% q/q and 13% q/q respectively, owing to a combination of factors: 1) a 481bp q/q gross margin expansion 2) a 7% q/q decline in operating expenses and 3) an -8% q/q decline in net interest expense. Compared with our estimates, sales and PBT were behind by 8% while PAT was behind by 12%.
On an annualised basis, Q1 sales are 11% behind consensus FY estimate. However, PBT is well on track to meeting consensus’ FY PBT estimate of N55bn.
According to Heineken’s (NB’s parent) trading statement, unit volumes for the group grew by high single digits due to growth from a number of countries including Nigeria. Consequently, we believe that the topline was reflective of a weaker price / volume mix skew as consumers continue to down-trade to economy brands. We would look to management for further clarification.
On the back of these results, we expect to see a neutral reaction from the market. NB shares have declined by -3.9% this year and have underperformed the index which is up 6.6%.
We rate the shares Underperform. Our estimates are under review.
Nigerian Breweries Q1 2018 results: actual vs. FBNQuest Capital Research estimates (N millions)