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Event: Nigerian Breweries reports Q2 2017 results
Implications: Upward revisions to consensus FY 2017 PBT forecast likely
Positives: PBT and PAT grew by 58% y/y and 43% y/y respectively
Negatives: No obvious negatives
Earlier this afternoon, Nigerian Breweries (NB) published its Q2 2017 results which showed that sales grew by 12% y/y to N89.7bn while PBT and PAT of N16.6bn and N12.3bn advanced by 58% y/y and 43% y/y respectively. The solid bottom line was driven by the strong y/y sales growth, a 4,650bp y/y gross margin expansion to 45.4% and a -35% y/y decline in net finance costs. These factors more than offset a 7% y/y increase in operating expenses. Further down the P&L, an increase in the effective tax rate to 26% compared with 18% in Q2 2016 resulted in PAT growth narrowing to 43% y/y. On a sequential basis, sales were flat q/q while PBT was down -5% q/q. The q/q decline in PBT was due to a 98% q/q and a 3% q/q rise in net finance costs and operating expenses respectively. These factors offset a 100bp q/q gross margin expansion. A lower tax rate q/q led to PAT growing by 7% q/q. Compared with our estimates, Q2 sales and PBT were broadly in line. However, PAT was ahead by 8% due to a lower tax rate compared with our 30% estimate. On an annualised basis, H1 sales are on track in line with consensus’ FY estimate of N359bn. However, PBT and PAT are tracking ahead by 18%.
In terms of the H1 performance, sales PBT and PAT all grew by 15% y/y, 33 y/y and 25% y/y respectively.
Similar to most consumer goods firms, we believe NB’s results were driven more by pricing rather than volume growth. We note that NB implemented price increases of around 12% in the latter half of the prior year, which is almost in line with the 12.4% y/y increase on the topline. Pending management comments, we continue to believe that the volume performance of national premium brands (previously mainstream) such as “Star” continue to be pressured by the visible squeeze on household wallets. We also attribute the marked expansion in gross margin y/y to improved fx liquidity following the CBN’s introduction of the autonomous fx window and its interventions on the fx market.
On the back of these results, we expect to see modest upward revisions to consensus FY 2017 PBT forecast. NB shares gained 17% this year but have underperformed the broad index and the sector by -21% and -6% respectively.
We rate the shares Underperform. Our estimates are under review.
Nigerian Breweries Q2 2017 results: actual vs. FBNQuest Research estimates (N millions)