Experts Commends Nigerian Breweries’ gross profit margin; higher than Q3-18, and the strongest Q3 since 2015

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The Management of the Nigerian Breweries (NB) Plc has published its nine months operational results for the third quarter (Q3) 2019 shortly after the close of market on the Nigerian Stock Exchange (NSE) Friday. Though, the results showed a decline in EPS of 17.0% year on year. However, for the three months ended September 30th ( Q3), 2019, the company recorded a much lower loss after tax of N1.05 billion compared to loss of N3.65 billion in Q3, 2018 with EBIT was positively impacted by stronger gross margin. However, higher net finance costs weighed on earnings down.


Nevertheless, management and the board have proposed an interim dividend of N0.50k per share which implies a dividend yield of 1.1% on the last closing price of 46.50k as at October25, 2019

Also Company’s gross revenue grew 2.7% year on year in Q3; however, gains were eroded by the higher excise duty expense of N24.2bn, representing 43% increase from the previous year, leading to flat net revenue growth10percent in the period.  In its Q3, 2019 trading update, Heineken NV (NB’s parent company) stated that Nigeria beer volumes grew low-single digit. Amidst flat pricing, this is, in experts view, is in line with the achieved gross revenue growth. However, on a quarter-on-quarter basis, net revenue declined 24.7% – the impact of the higher excise duty and Q3 being a seasonally weak quarter

Historically, NB’s gross profit margin hits 37.4% years on year in Q3, 2019, which stand as 895bps higher than in Q3, 2018, and the strongest Q3 reading since 2015. The relatively strong margin is indicative of the continued growth in the premium segment – Heineken NV stated that the premium portfolio grew double-digit, driven by the Heineken brand – which has been positive for mix and provides evidence that premiumisation continues to be supported

OPEX rose by 6.1% year on year in Q3, 2019, with the ratio-to-revenue coming in at 36.9%. The result shows a 14.3% year on year increase in marketing and distribution expenses reflecting its focus on increasing brand visibility – ‘sell-out’ strategy. Other income grew 55.0% (it is not clear at this stage what led to the significant increase), which when combined with the improved gross profit, was enough to offset the rise in OPEX. This resulted in EBIT and EBITDA rising by 118.2% year on year and 121.0% year on year, with 1.1% to 700 bps and 13.8% to 754 bps margins, respectively


Elsewhere, a net finance cost of N2.90 billion was recorded –141.5% higher year on year, as a 140.2% year on year increase in finance costs outweighed a 59.7% rise in finance income. On finance costs, experts note that the balance of bank overdrafts and commercial papers is higher compared to Q3,2018 to 148.2% basis points and Q4,2018 to 1,914.6% basis points, following NBs N30.00 billion commercial paper issuances in April (N15.00 billion) and June (N15.00 billion).

Amehnews recall, that it would be the seventh consecutive quarter that the company’s profit has declined

Year to Date 30th Sept 2019 Year to Date 30th Sept 2018
REVENUE 259,924,966 254,998,171
EXCISE DUTY (24,245,533) (16,932,486)
NET REVENUE 235,679,433 238,065,685

When contacted for comments, experts at Cordros Research said “We like that the company continues to sustain a relatively strong gross margin, especially amidst the challenging operating environment. This implies that management’s premiumisation strategy is bearing fruit, was noted.


Backup with optimism worlds they said, “We expect stronger earnings in Q4 base on: (1) due to year end festivities, and  (2) as the company has notified distributors of impending price increases across key brands in November, both of which will offer a boost to topline. With share price down 46.1% YTD and the stock trading at a 2020E P/E of 19.7x, which is a discount to historical average forward P/E of 23.5x, we expect a positive reaction.

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