Nigerian Breweries Plc (NB) published its Q3-22 (9M-22) unaudited results recently, reporting a Loss Per Share of NGN0.49 in Q3-22 (vs EPS of NGN0.06 in Q3-21), driven by a weaker gross margin (-262bps y/y), higher operating expenses (+30.9% y/y) and net finance cost (+53.0% y/y). However, the 9M-22 EPS came in at NGN1.82 (+78.4% y/y), buoyed by solid revenue growth (+27.2% y/y). On the 9M-22 EPS of NGN1.82, the board has declared an interim dividend of NGN0.40/share, translating to a dividend yield of 1.0% based on the last closing price (NGN41.80/share).
In Q3-22, NB’s revenue grew by +19.3% y/y (9M-22: +27.2% y/y), driven mainly by higher product prices. Moreso, we highlight that NB also faced topline pressure from excise duty increases (excise duty on beer was flat at N35.00/cl in 2020 and 2021). In its Q3-22 trading update, Heineken NV (NB’s parent company) stated that the net revenue in Nigeria grew close to 20.0% y/y, following the implementation of more substantial pricing to mitigate the rising inflation. Heineken NV further noted that the total volume outperformed the market despite decreasing by a high-single-digit, reflecting the pressure on consumer disposable income amid heavy rainfalls and flooding. However, the brewer’s premium portfolio continued its strong momentum and grew by more than one-third, led by Heineken®, Tiger, and Desperados.
Gross margin printed 30.0% in Q3-22, 262bps lower than in Q3-21. We highlight that the gross margin was dampened by elevated cost pressures from surging inflation and currency weakness. For clarity, the expansion in NB’s cost of sales (+24.0% y/y) overshadowed the revenue growth (+19.3% y/y) in the period.
Accordingly, NB recorded an operating loss of NGN452.29 million in Q3-22 (vs operating profit of NGN4.82 billion in Q3-21) due to the decline in gross margin and higher operating expenses (+30.9% y/y). Consequently, EBITDA for the period printed NGN9.18 billion (-38.2% y/y), reflecting higher cost pressures.
Further down, net finance charges increased by +53.0% y/y to NGN6.15 billion, as finance costs (including net loss on foreign transactions) surged by 171.7% y/y. On finance costs, we note that NB recorded significant FX losses due to exposure from its foreign currency-denominated payables (+163.2% y/y to NGN3.08 billion). In addition, the balance of loans and borrowings (NGN108.13 billion) in 9M-22 is significantly higher than 9M-21 (NGN41.15 billion).
Consequently, the company recorded a loss after tax of NGN3.99 billion in Q3-22 (vs PAT of NGN498.37 million in Q3-21), following a tax credit of NGN2.62 billion.
Comment: NB’s performance in the quarter expectedly reflects the weak macroeconomic landscape amidst a more intense competitive environment. Notwithstanding, we believe a bright spot for volume exists in the premium segment leveraging Heineken. Thus, we expect a rebound in earnings in Q4-22 due to (1) increased demand following year-end festivities and (2) further price increases to mitigate rising costs and cover the adjustment in excise duties. NB’s share price is down 14.3% YTD. Our estimates are under review.
