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African Frontier Market

LEAD ANALYST
Chuks Anyanwu ChuksA@morgancapitalgroup.com
+234-08066397836

444

SALES
Julcit Hwande sales@morgancapitalgroup.com

...leading the Global Investment Path to Africa TM

+234-8107596134 +234-1-2714713-4

REGULATORY COMPLIANCE

July 22, 2013

Taiwo Balogun compliance@morgancapitalgroup.com

MD/CEO

Stock Rating
SELL
Industry View
In-Line

NIGERIAN BREWERIES
EQUITY NIGERIA BREWERIES

Ayoleke O Adu FCS, CFA ceo@morgancapitalgroup.com

Bloomberg Ticker: NB:NL

NSE Symbol: NB

Investment Summary & Highlight

NB PLC: finding growth - is the glass
now half empty?

Listed on the Nigerian Stock Exchange

(NSE)
Key Ratios & Statistics
Current Stock Price:

N170.30

Fair Value:

N105.60

Outlook:

H1 -2013: Revenue and Net income improved by

7.4% and 6.6% respectively YoY.
Nigerian Breweries (NB or the Company) on
Wednesday 14th July 2013 released its unaudited H1 2013
result. Revenue rose by 7.4% to N133.81billion ($836.31M)
from N124.62billion ($778.87M) YoY, while net income rose
by 6.6% to N20.66billion ($129.12M) from N19.37billion
($121.06) YoY. The Companys gross profit rose by 7.6% to
N66.37billion ($414.81M) from N61.69billion ($385.56M),
boosted by the slightly slower growth in cost of sales which
rose by 7.16% compared to the faster growth in revenue.
Operating profit on the other hand was stable at
N31.62billion ($197.62M) from N31.43billion ($196.43M),
managing a marginal growth of 0.6% YoY. Operating profit
growth was impaired by the surge in operating expenses
which rose by 14.85%, a lot faster than the growth in
revenue and gross profit. Consequently, operating margin
weakened to 23.6% from 25.2% YoY. We think that the
growth in revenue is sub-par, considering that the
Company only recently acquired some smaller brewers
from its parent company Heineken. We also think that
competition is clearly becoming a strong factor in the
Companys inability to grow sales, considering the
emergence of a low end Spirit/Gin market which is
becoming increasingly popular with middle income and
low income earners. Also worthy of note is that a lot of
people, particularly the high income earners are more
health conscious and consuming more health friendly
beverages which may also have a part to play in NBs sub
inflation revenue growth performance in both the first and
second quarter of fiscal year 2013. Given Nigerias annual
average growth rate of between 2-3% and inflation rate of
around 8%, we expect a consumer goods company to at
least match a growth rate of 10- 11% by our assessment,
for the companys growth to be sustainable going forward.

NEGATIVE

Market Capitalization:

$8.05B

Year End:

December

Price-to-Earnings (PE)
2012Trailing:

33.85X

2013 Forecast:

32.25X

2014 Forecast:

30.52X

Earnings-per-Share (EPS)
Current: (FY 2012):

N5.03

2013 Forecast:

N5.28

2014 Forecast:

N5.58

Dividend-per-Share:

N3.50

Return-on-Equity:

22.80 %

Return-on-Asset:

15.00 %

Outstanding Shares (mn)

7,562

Free Float: (mn)

2,400(31.74%)

Year-to-Date:

19.25%

Latest Result

H1 2013

Dollar ($)

N160

H1 -2013 Result @ a glance

N (mn) N (mn) %
H1 -2013

H1 -2012

Gross Earnings

133,815

124,621

7.38

PBT

29,607

28,525

3.79

PAT

20,663

19,376

6.64

EPS

2.73

2.56

6.64

SALES & PBT GROWTH

Nigerian Breweries traditionally posts its strongest quarterly
performance in the fourth quarter due to its associated festivities.
We expect this trend to continue and expect management to be
more proactive in managing its controllable cost line which has
grown ahead of revenue in both first quarter and half year,
considering that it has not grown its revenue as aggressively as it
should.

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

39%

20%
14%
13%
8%

-1%

2010

2011

2012

Sales

13%

39%

20%

PBT

8%

14%

-1%

400%
350%
300%
250%
200%
150%
100%
50%
0%
-50%

Sales
PBT

Valuation shows that NB overvalued.

Sales growth and PBT growth has been topsy

The stock is currently trading at a 61.27% premium to our fair value

estimate of N105.60, with a 12month investment horizon. Our fair
value computation is based on our financial performance
expectation for FY 2013. We placed a negative outlook on the
stock because of its downside potential from its current trading
price to our expected fair value.

turvey over the last three years

3 YEAR CAGR (2010-2012)

14.2%
15.0%

Earnings Projection

10.7%
10.0%

7.3%
CAGR

Our FY 2013 revenue estimate for Nigerian Breweries is

N279.61billion ($1.75B) which translates to a 10.65% improvement
relative to FY 2012, while our net income estimate is N39.93billion

5.0%

0.0%
Sales

($249.56M) and equates to a 4.96% improvement relative to FY

Operating Exps

PBT

2012. This yields an EPS of N5.28 and a forward P/E of 33.42X. We

think the Companys inability to grow sales is a major challenge

On a 3year CAGR assessment, operating expenses has

and despite our expectation that the Company will continue to see

grown ahead of both revenue and PBT growth.

improved sales growth in the fourth quarter, we think that the

Companys sales struggle will impair overall aggressive growth in
the FY 2013. Our fair value for the stock is N105.60, our exit P/E

ROE & ROA

20.00X at which point we expect the stock is fully priced based on

our earnings projection for FY 2013.

60.0%
60.0%

The Company has only managed a 10% average revenue growth

rate over the last three fiscal years which we think should have

50.0%

40.0%
30.0%

been more aggressive considering the huge investment in capacity

20.0%

over the period. Operating expenses also rose at an average rate of

10.0%

14% over the last three fiscal years, ahead of the revenue growth

0.0%

over the same period.

26.3%
22.8%

26.5%

2011
16.1% 15.0%

ROE

ROA

The Companys PBT also grew by an

average growth rate of 7.3%, well under the growth rate of the

ROA & ROE declined progressively over the

Companys controllable cost-line over the same three year period.

past three fiscal years.

We think management needs to be a bit more deliberate in the

management of this cost line to improve its bottom line capacity.
Overall, we expect an improved performance from the company on
a year on year assessment for FY 2013 and 2014 as the Company
strives to ward off competition. However the Company needs to
MorganCapital
Research
step up
to the challenge to reclaim its market dominance in the
www.morgancapitalgroup.com

Nigerian brewery space.

2010

Equity Research Nigeria

2012

3
Valuation Analysis
Our fair value for Nigerian Breweries shares was calculated using

PROFITABILITY MARGINS

the Dividend Discount Model comprising our expected dividend

estimate for the company and a MorganCapital customized tweak

60%

to adjust for the risk of investing in the Nigerian consumer goods

50%

sector.

Our Required Rate of Return (RROR) factors in a risk

47%

52%50%

40%

2010
24%27% 25%

30%

premium of 7% and the yield for the most recently issued 20-Year

20%

FGN Bond was applied as the risk free rate of return.

10%

24% 27% 22%

2011

2012

0%

GPM

Our projected dividend of N3.50 for FY 2013 which amounts to a

OPM

PBTM

66% dividend payout ratio is based on our earnings estimate for

All profitability Margins have experienced a seesaw

FY 2013.

effect over the past three fiscal years.

Investment Conclusion
An overvalued stock based on our research, with focus on our FY

PRICE RELATED RATIO

2013 estimates. We think the Company is currently experiencing

challenges in growing its revenue as beer consumption growth

30.0

may have been stifled with increasing focus of low income

25.0

consumers shifting to the more affordable local gin/spirit

20.0

products which are increasingly gaining prominence. We think

15.0

that Nigerian Breweries needs to re-evaluate its strategy in order

to remain competitive in this sector and focus on low income
brands to capture this growing market sect. The company also

29.2 28.2
21.9

19.5
NB
GUINNESS

10.0

4.4 3.3

5.0
0.0

P/E

P/S

P/CF

needs to improve on its efficiency in the management of

controllable cost line to reduce the impact of the slow growth in

Nigerian Breweries is more expensive on all price

revenue.

related parameters we considered compared with its

peer.

Overall, NB PLC remains a strong brand; its consistent dividend

payout history and relative price stability make the stock a favorite
for investors especially Pension Fund Administrators and foreign
investors. We retain our SELL recommendation in the shortmedium term, because the stock is currently trading at a 61.27%
premium to our fair value estimate, which makes it susceptible
to a significant level of price correction in a down market. We
will re assess our position as new information becomes available.
.

MorganCapital Research
www.morgancapitalgroup.com

Equity Research Nigeria

Investment Risks To our Fair value

Slower/Higher than expected growth in revenue: This is a major factor that can impair our earnings estimates.
Although we have adjusted our earnings expectation based on our analysis, there is always an outside chance that
the Company either out performs or under performs our revenue estimates.

Better Management of the controllable cost lines: It is our expectation that the Companys weakening profit margin
will persist as the year progresses and this was taken into account in arriving at our profit expectations. If however,
this is not the case and there is an improvement in margins, this may impair our earnings expectation.

NIGERIAN BREWERIES
MARKET CAPITALIZATION (N'm) ($)
GROSS REVENUE (N'm)
PROFIT B/F TAX
TAX
PROFIT AFTER TAX
EARNINGS PER SHARE (EPS)
PRICE-EARNINGS RATIO
SHARE CAPITAL
OUSTANDING SHARES (M'n)
OWNERS' EQUITY
CASH DIVIDEND
SCRIP DIVIDEND
RELEASE DATE
AGM DATE
CLOSURE DATE
PAYMENT DATE

2010

2011

2012

3,887
185,862
44,880
14,548
30,332
4.01
19.22
3,781
7,562
50,172
250K
Nil
21/03/11
15/04/11
05/04/11
15/04/11

4,606
211,071
56,397
18,347
38,050
5.03
18.76
3,781
7,562
144,828
125K
NIL
09/03/12
03/04/12
23/03/12
05/04/12

6,948
252,674
55,624
17,581
38,043
5.03
29.22
3,781
7,562
166,799
300K
NIL
41,611
24/04/13
15/04/13
24/04/13

2013(F)
4,991
279,609
58,717
18,789
39,928
5.28
20.00
3,781
7,562
191,819
350K
NIL

MorganCapital Securities Ltd

The Pent Floor
3, Biaduo Street, Off Keffi Street, S/West Ikoyi.
P.O.Box 75691 Victoria Island, Lagos.
+234-1-2714713-4, www.morgancapitalgroup.com

MorganCapital Research
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Equity Research Nigeria

2014(F)
5,254
310,366
62,073
19,863
42,210
5.58
19.91
3,781
7,562
220,592
334K
NIL

DISCLOSURE

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report relates, and no part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendations, views or
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