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If there is ever anything in Nigeria as close as the Coca Cola Pepsi Co rivalry in Nigeria then it has got to be the Nigerian Breweries Plc and Guinness Plc. Between both companies lie at least 5 of Nigerians biggest brands, namely, Star, Guinness Stout, Harp, Malta Guiness  and Maltina. These are household names all over Nigeria and generate huge sums of money for both companies. The Beer Power Houses of Nigeria have been so dominant for years even the threat of the Global Meltdown and the banking crisis seem not to have fazed them. Rather, they have seen earnings continue to rise year after year.

Since the battle is between the two giants at least within their industry its time we match both companies together and see who is better at running the business efficiently and maximizing returns on equity.

From above it may seem Nigerian Breweries performed better in their respective annual accounts. It had a higher turnover, operating profit and profit after tax. NBL also showed better efficiency as Admin, Selling & Distribution Expenses was 49% of Gross Profit and against 53% for Guinness. Return on Equity was also great for NBL Shareholders amassing a whopping 49% as against 45% for Guinness. It is important to note that both company’s have different financial year end (see above). This makes comparisons a little difficult.

However, by Nigerian Standards both company’s did amazingly well in the respective years.  Return on Equity of above 40% is remarkable good for any company. Even with intense competition they (NBL and Guinness) are still able to make good Operating Profit Margins of 25% and 21% respectively. I dare say Warren Buffet himself will have both in his portfolio if he were in Nigeria.  NBL and Guinness are companies any long term value Investor will have in its portfolio.Between this two company’s Nigerians has spent a whopping sum of N354b on beverage (including alcohol) in 18 months making their business model almost insulated. Interestingly the beer market still has immense growth potentials. However, this is threatened by inflation and rising cost in the standard of living of most Nigerians. Pundits believe this will dent their earning potentials in the the coming year. I personally do not see this as much of threat to the company as Nigerians regardless of the economic situation will still consume. For example, NBL in its First Quarter 2012 results reported an Operating Profit margin of 23.15% almost at par with the prior year which was 23.07%. Revenue also grew 29% from N52b in  3 months to march 2010 to N67.2b same period 2012. This is despite the month of January where the country witnessed an economic melt down. The only problem both companies may face is the huge cost of debt which they successfully mitigated against in the prior year by hedging properly. A huge debt load (especially Naira) will affect earning especially now that interest rates are off the roofs.

Another threat may well be the imminent entrant of SAB Miller the second largest brewer in the world.  Whilst its a threat for Investors, the Company and Shareholder, its probably a welcome threat for consumers who will only hope beer prices, a perfectly inelastic product for some, crash due to intense competition. Beer wars like other forms of warfare, both the Victor and Vanquished experienced a bitter sweet end. Similarly, for consumers, the quality of a beer depends on how “bitter/sweet” it is.

4 COMMENTS

  1. Having gone thru dis reports,my advice goes thus;
    1.Investors should beware of huge investments as the breweries mkt is heavily threatened by red wines,spirits and champaigne,which may bring about a drastic reduction in consumption that may reduce profits as against operational costs.

    2.Consistent monitor and periodical review on investment should be a yardstick for future investments,this inturn would give the strong convictions about increased investments that will yield quality retirns.

    • Thanks for your comment. Wines and spirit are competition but I do not think its a formidable one. There is so much competition within the wine and spirit market in itself to pose a major threat to the beer market. Also, the wines and spirit are seen as esoteric product for some.

      I couldn’t agree with you more on the second point.

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