Nigerian Breweries Plc (NB) published its 2022FY audited financials Friday, reporting an EPS of NGN1.58 (2021FY: NGN1.57). The achieved EPS (-38.5% variance from our estimates) was driven by the sturdy growth in revenue (+25.9% y/y). The board has proposed a final dividend per share of NGN1.03 (2021FY: NGN1.20), implying a dividend yield of 2.5% based on the last closing price of NGN41.50.
Revenue grew by 25.9% y/y (2021FY: +29.7% y/y) in 2022FY, primarily driven by (1) strong pricing to mitigate inflation and (2) brand mix improvements. The performance was also supported by a strong performance of the premium portfolio, led by Tiger and Desperados, and the continued momentum of Heineken®, while the low and non-alcoholic portfolios remained broadly stable. According to the management, the total volume in the period weakened, reflective of the pressure on consumer disposable income amid supply chain challenges.
Gross profit margin expanded by 206bps to 38.7% in 2022FY, (2021FY: 36.7%), as the strong revenue growth (+25.9% y/y) outweighed the increases in the cost of sales (+21.8% y/y). The higher cost in the period was influenced by the (1) highly inflationary environment, (2) devaluation of the naira, and (3) high energy prices.
Operating expenses remained elevated (+31.6% y/y) in 2022FY (2021FY: +37.4% y/y) with marketing-related costs accounting for 82.8% of the total OPEX. We attribute this persistent increase in operating expenses mainly to the challenging operating environment in Nigeria, and the brewer’s continuous focus on increasing brand visibility. As a result, the group’s EBIT (-9bps) and EBITDA (-234bps) margins declined to 9.4% and 16.6%, respectively, in 2022FY.
Net finance charges grew by 93.4% y/y to NGN34.42 billion, on the back of higher FX losses (+274.1% y/y) due to exposure from its foreign currency-denominated payables amid a 23.9% y/y decline in finance cost.
Overall, the company recorded a pre-tax profit of NGN17.34 billion in 2022FY (-26.8% y/y). Following a tax expense of NGN4.15 billion in the period, profit after tax was higher at NGN13.19 billion (2021FY: NGN12.67 billion).
Cordros Capital says it likes that NB continues to drive profitability with its pricing and premiumisation strategies, amid the pressure on margins, especially in Q4-22, underpinned by lower disposable income, high input costs, and naira devaluation. Going forward, we expect NB’s profitability to remain satisfactory in 2023E, supported by solid revenue growth. However, we highlight that weak macroeconomic fundamentals, depressed consumer wallets, and elevated operating cost remains significant headwinds to volume growth and profitability.
