Event: International Breweries reports Q2 2018 (end-Sep) results
Implications: Negative reaction expected by the market
Positives: Gross margin expanded by 39bps y/y and 133bps q/q
Negatives: Pre-tax and post-tax losses widened to –N1.2bn and –N1.4bn respectively
The NSE published International Breweries’ Q2 2018 (end-Jun) results today. They showed that sales of N8.0bn grew by 20% y/y. However, the company reported pre-tax and post-tax losses of –N1.2bn and –N1.4bn respectively compared with –N216m in Q2 2017. The sales growth and a 39bp y/y gross margin expansion was not enough to offset a 41% y/y rise in opex and a –N945m reported on the other gains/losses line, leading to the pre-tax loss. Stripping out the –N945m, pre-tax loss was –N279m. The after tax loss widened to –N1.4bn due to a tax figure of –N190m versus N0 in Q2 2017. On a sequential basis, sales declined by -16% q/q – the decline, we attribute to seasonality. The end-Sep quarter is typically one of the weaker quarters for the brewers. Despite a gross margin expansion of 133bps q/q, the company reported losses due to the q/q sales decline, 99% q/q and 25% q/q rises in finance costs and operating expenses respectively and the operating exchange loss of -N945m.
Compared with our estimates, Q2 sales were behind by 8%. We had forecast PBT and PAT of N1.4bn and N984m respectively. On an annualised basis, H1 sales are tracking behind consensus FY estimate by 9%. PBT and PAT are tracking significantly behind consensus’ forecasts of N6.7bn and N4.5bn respectively.
International Breweries’ Q2 2018 results makes the third poor set of end-Sept numbers reported by the brewers following Nigerian Breweries and Guinness Nigeria. Although all three companies managed to grow their topline y/y, their bottom lines surprised negatively. For International Breweries, operating expenses and the operating exchange loss weighed on earnings. We had been more positive on International Breweries because of the favorable segment (value segment) it operates in and its merger with Pabod Breweries and Intafact Breweries. We await comments from management on both the opex and other gains/losses lines.
Year to date, International Breweries shares have gained 170% (we attribute the rally partly to the merger news) and have significantly outperformed the broad index which is up 37% this year.
We rate International Breweries shares Underperform. Our estimates are under review.
International Breweries Q2 2018 (end-Sep) results: actual vs. FBNQuest Research estimates (N millions)