NB: CONSISTENT DIVIDEND PAY-OUT AMIDST DWINDLING PERFORMANCE

 

The management of Nigerian Breweries, on Thursday, made available its full year earnings report for the period ended December 31, 2015 to the investing public, in line keeping with corporate governance requirements. 

A comparison of the 2015 figures and the previous year score-card shows that sales turnover was up, compared to the 2014 value; but profitability level for the period fell by 10.5 percent to N38.06 billion from N42.52 billion in 2014. Shareholders’ fund scrawled up marginally by 0.21 percent to N172.32 billion from N171.96 billion in 2014.

Earnings per share fell to N4.80 as against the comparable period of 2014 level of N5.62. Consequently, investors' waiting period dropped marginally to 20.42x from 22.95x, this was not as a result of improvement in earning but the drop in its share price. The said earnings yielded 4.90 per cent of the market price

as at released date is above the 4.36 per cent yield estimated in 2014.

The saturated market and stiff competition in NB's industry is telling on its top line as cost of production and operation increased 15 per cent and 16 per cent respectively on the back of increasing costs on importation of raw materials resulting from the escalating foreign exchange rates. Similarly, finance charges worsened by 44 per cent as the company's current financial liabilities surged by 344 per cent, sending net income on a 10.50 per cent southward slant. 

The company's mixed performance was attributed to the fact that during this financial year it operated in an even tougher economic environment which is estimated to become worse. This was negatively impacted by rising core inflation eating into consumers' disposable income and consequently shrinking demand as consumers focus on satisfying their basic necessities.

NIGERIAN BREWERIES
December, 31 2015
COY	2015	2014	% Chg
	(N)	(N)
Date Released	Feb 11, 2016	Feb 12, 2015
Price at Released Date	98.00	129.01
Revenue	293,906,792,000	266,372,475,000	11.46
Profit After Tax	38,056,123,000	42,520,253,000	-10.5
Shareholders' Fund	172,321,503,000	171,964,263,000	0.21
Dividend
ESTIMATED RATIOS
Earnings Per Share	4.80	5.62	-14.6
PE Ratio	20.42	22.95
Earnings Yield	4.90	4.36	12.39
Book Value	21.73	22.74	-4.44
ROE (%)	22	25	-12.0
Profit Margin	12.95	15.96	-18.9
Year End	Dec	Dec

Source: NSE, Company Report & Investdata Research

Strength and Pitfalls

The strength of the company in this troubled business environment is the nature of its products. As a leader in its industry with a multiple product line with different target markets has given it edge to dominate and penetrate into new markets.This would help the company overcome its challenge and sustain operation for growth in the future. The current ratio of less one is an indication that the company may find it difficult meeting up with short-term financial obligations.

As we have observed and also as a manufacturing company, more than half of its current assets are stored in the inventory, while the debt/equity ratio reveals that the company is operating on borrowed fund. This calls for more retained earnings but was violated by the board of directors with the increase in dividend from N4.75 in 2014 to N4.80, representing a 100 percent pay-out. This mean spaying all the earnings as reward to shareholders, a situation that is not good for future expansion, especially in this prevailing situation. Management should rethink this decision, knowing that continuity is very important, no matter the amount of money the core investors want to repatriate home.

Technical View

 

This is a tradable stock that had up and down trend to allow traders buy low and sell high. The stock is recently forming a descending triangle at a strong support level of N95 as market and analyst interpret financials released to the market recently. Traders and investors can take position at this level or buy in stages as reversal is imminent.   

Analyst Opinion

The saturated market, added to the stiff competition in the industry, coupled with low purchasing power of many Nigerians would keep earnings nose-diving, regardless of its capacity building for now. So we suggest that the company should consider implementing a strategic backward integration model which will reduce its exposure to foreign exchange volatility. This will ultimately necessitate the sourcing of its raw materials locally, thereby essentially cutting down on production costs while taking strategic steps to reduce its debt burden. 

Using Price to Earnings Ratio (PER) method, and based on the company's full-year earnings per share of 480 kobo and price to earnings ratio of 20.42x. This, despite the state of the economy, is still high. We arrived at the fair value of N100 per share,which means the stock is currently selling at a little premium. Short-term players should keep their gaze on this stock, while income investors should think long-term when considering the equity.  The growing operational  cash earnings indicates possibility of upward reversal in the dwindling earnings of the company in the future considering the nature of its products and increasing market share.

We recommend BUY for Traders and investors

Company Profile

Nigerian Breweries Plc was incorporated in 1946 and took off earnestly in 1949. After three years of preparation, recording a landmark when the first bottle of Star lager beer rolled out of its Lagos Brewery bottling lines. This first brewery in Lagos has undergone several optimization processes and today boasts of the most modern brew house in the country.

In the course of its capacity building, the company commissioned its second brewery in Aba.  Kaduna Brewery was commissioned in 1963 while Ibadan Brewery came on stream in 1982.  

In 1993, the company acquired its fifth brewery in Enugu. In October 2003, it followed with the commissioning of a sixth brewery  at Ama-Eke, also in Enugu State. Ama Brewery is today, the biggest and most modern brewery in Nigeria.Operations in the Old Enugu Brewery were however discontinued in 2004, while the company acquired a malting plant in Aba in 2008. 

In October 2011, NB acquired majority equity interests in Sona Systems Associates Business Management Limited, (Sona Systems) and Life Breweries Limited from Heineken N.V. This followed Heineken’s acquisition of controlling interests in five breweries in Nigeria from Sona Group in January 2011. Sona Systems’ two breweries in Ota, Ogun State and Kaduna, as well as Life Breweries in Onitsha have now become part of Nigerian Breweries Plc, together with three brands: Goldberg lager, Malta Gold and Life Continental lager. The company now has eight operational breweries from which its products are distributed to all parts of Nigeria, in addition to the ultra-modern malting plant in Aba and Kaduna

 

NIGERIA BREWERIES PLC
Share Holding Structure
Heineken Brouwerijen B.V	54.09%
Stanbic Nominees Nig. Ltd	15.53%
Other Nigerians & Associations	30.38%
Other Statistics
Shares Outstanding (MN)	7,929,100,888
Opening Price (2015)	N165.30
Closing Price  2015	N136.00
Date Listed	Sept. 5th 1973
Year End	Dec 31st

Management

The company's management team has demonstrated competence and commitment in driving its vision of delivering value to its customers and creating wealth for its shareholders by consistently building capacity to support its profitability level by increasing product lines to meet different market segment. This was hampered by the static position of the economy with the dwindling purchasing power of Nigerians.

At the same time, the company has become more prudent in managing costs, regardless of the high cost associated with manufacturing, marketing and distribution of its products which has not reflected on its earnings power.

As a leading brewer in Nigeria today, the company's investment decision to continually build capacity to meet market demand has not impacted its bottom-line as revealed by the quarterly and full-year earnings report of 2015. At the same time these unimpressive numbers have started influencing its share price negatively.

Its research and development department has in recent times introduced bitters that reflects NB's Africa heritage by blending African fruits. The product has been aptly named 'Ace Roots,' to penetrate the new market. Indications are that the product is already enjoying increased market acceptance, put its competitor on a tight corner.

Five-Year Performance

NB has in the last five years made progress in improving on it earnings since the incumbent management took over the company's affairs. This has boosted investor confidence and returns on consistent rewards to its stakeholders. The company's product line and marketing drive has created goodwill which has impacted on its sales level. The continued repositioning, repackaging and the nature of its products are expected to propel the company's performance higher in the future, as it increases market share with acquisition of companies and new factories to meet demand.  Its sales growth of 39.24 percent in the period under view is an indication of where the company is going with its investment in expansion and introduction of new products. However, the current earnings level seems saturated after it had hit all high of N43.08 billion in 2013 from N38.05 billion in 2011 to close the period under review at N38.06 billion on a flat note. This is a pointer to the state of the economy for period as discretionary income of many Nigerians are declining.  The marketability of the company's equity on the exchange is great potential for its trading which has attracted market players and income investors to this stock. 

The company's earning yield for five years have been below 10 percent, a number that does not seem too good, even as the company has prospect to enlarge its market share through sales promotions and advertisement, which may subsequently impact its profit. Its profit margin for the same period was below 15 percent, which is below, by all standard, whether internationally or locally, but more needs to be done. 

The company's net assets is currently valued at N172.32 billion, up from N144.83 billion in 2011, representing a 19percent growth. This is a reflection of its investment in assets to grow earnings power that would drive other profitability indices.

	NIGERIA BREWERIRS FIVE YEARS FINANCIAL PERFORMANCE
		2015	2014	2013	2012	2011
Date Released		11-Feb-16	12-Feb-15	13-Feb-14	22-Feb-13	June 1st, 2012
		000,	000,	000,	000,	000,
Price @ Released Date		98	126	167	166	97
Sales Revenue		293,906,792	266,372,475	268,613,518	252,674,213	211,071,805
Profit After Tax		38,056,123	42,520,253	43,080,349	38,042,714	38,050,756
Shareholders' Fund		172,321,503	171,964,263	112,359,185	93,447,892	144,828,650
Dividend		4.80	4.75	4.50	3.00	3.00

Source: NSE, Company Report & Investdata Research

Estimated Ratios

The company's earnings Per Share (EPS) for the period is a reflection of harsh business environment as the its earnings power went down to N4.80 in 2015 from N5.03 after hitting high of N5.70 in 2013. The scorecard revealed least performance in the last five years. The said EPS is same as 20.42x (times) of the market price at release date and yielded 4.90 percent of market price.

The book value at N21.73 indicating that the stock is selling at a high premium, because it had created value for its shareholders to justify its earnings growth and dividend through the observed periods  to re-establish confidence and assurance for further growth.

	NIGERIAN BREWERIES  ESTIMATED RATIOS
		2015	2014	2013	2012	2011
Earnings Per Share		4.80	5.62	5.70	5.03	5.03
PE Ratio		20.42	22.94	29.14	33.00	19.28
Earnings Yield		4.90	4.36	3.43	3.03	5.19
Book Value		21.73	22.74	14.86	12.36	19.15
ROE		22.00	25.00	38.34	40.71	26.27
Profit Margin		12.95	15.96	16.04	15.06	18.03
Pay-out Ratio		100	84.51	79.00	59.64	59.62
Year End		Dec	Dec	Dec	Dec	Dec

Source: NSE, Company Report & Investdata Research