Nigerian Breweries Plc (NB) delivered impressive earnings in its 2021FY results, reporting
EPS of NGN1.58 (+72.0% y/y). The achieved EPS is 11.6% above our 2021FY estimate of NGN1.42, owing to the strong topline growth (+29.7% y/y) and positive surprise in other income (+458.7% y/y). The board proposed a final dividend of NGN1.20/s, which equates to a yield of 2.7% on the closing price of NGN44.50 (March 18). We believe NB remains on track to deliver positive earnings in 2022E, underpinned by its market leadership position, strong distribution network, brand portfolio, and improvements on its premiumisation strategy. In addition, we believe that NB still represents a value stock in the brewer industry given its healthy margins, robust balance sheet, and attractive dividend payout. Following the revisions to our estimates, we have raised our target price to NGN52.58/s (previously; NGN48.50) but retain our “HOLD” rating on the stock. On our 2022E EPS of NGN2.37 (+49.4% y/y), we estimate a DPS of NGN2.37, implying a dividend yield of 5.8% based on the price of NGN44.50.00/share (as of March 18).
Volume Growth and Price Increases to Support Topline: NB reported 2021FY revenue growth of +29.7% y/y driven by volume, pricing, and portfolio optimisation (mix). Although higher than our expectations (7.4% above our estimate), revenue growth was lower than its rival competitor (GUINNESS: +53.7% y/y). We believe NB’s topline benefitted from substantial price increases across its premium portfolio and an increased demand following the reopening of on-trade channels (event centers, bars, and clubs). Our channel checks revealed that the brewer increased prices by an average of 4.2% across its products portfolio. In its 2021FY earnings call, Heineken NV (NB’s parent company) stated that the premium portfolio grew above 30.0%, led by its “Tiger” and “Heineken” brands. In contrast, “Malts” led the growth of the non-alcoholic portfolio. For 2022E, we do not expect substantial price hikes, given the significant price increases implemented in 2021 and the impact of the elevated inflationary environment on consumer spending. Nonetheless, we expect an increased volume outturn following the brewer’s recent expansion activities on its Ama brewery plant. Overall, we estimate revenue growth of +6.5% y/y to NGN465.71 billion in 2022E.
Margins to remain resilient amid higher costs: Despite the prevailing FX issues and surging inflation, gross margin expanded (+150bps) to 36.7% in 2021FY, reflective of productivity gains as revenue growth (+29.7% y/y) outpaced the growth in the cost of sales (+26.8% y/y). Furthermore, the continued growth in the high margin premium segment driven by the Heineken brand has been positive for mix and provides evidence that premiumisation continues to be supported. However, the EBITDA margin moderated (-200bps) to 18.9%, undermined by a higher Operating expense ratio (+160bps to 28.3%). We expect NB’s gross and EBITDA margins to grow by 32bps and 31bps to 37.0% and 19.2%, respectively, in 2022E, supported by mild price increases amid the brewer’s efficient cost management strategy. Overall, we model a 49.4% y/y growth in EPS to NGN2.37 (Consensus: NGN2.61).
Valuation: Following the revisions to our estimates, we increase our target price to NGN52.58/s (previously: NGN48.50/s), implying an 18.2% potential upside. On our estimates, NB is currently trading on a 2022E P/E of 17.7x, a discount to its five-year average and peers of 26.1x and 21.1x, respectively.
