Earnings Review H1: Nigerian Breweries Shares Make Me Thirsty !!!

Nigerian Breweries has in recent years remained one of the most consistent performers in the Nigerian Stock Market. It has continued to improve on its revenues and earnings ensuring that shareholders receive steady dividends annually.

Revenue

Revenue increased 23.87% to N136.51 in the first half of the year compared to the same period last year. However, over 50% of their revenue was eaten up by cost of sales. Cost of Sales was N74b for the period higher than the N56.79b incurred in the first half of 2011. Gross Profit Margin therefore was 45.8% lower than the 48% last year. This indicates a highly competitive business environment as well as reflecting increase in price of raw materials.

Operating Expense

Operating expenses increased 20.45% to N30.26b in the first half of the year. Selling, General and Admin expenses as a percentage of gross profit was 48.4%. The impact of the rising operating expenses lowered operating profit margin from 26.1% to 24.2%.

Finance Cost

Finance Cost ballooned to N3.79b in the first half of this year just as long term loans increased 8.5% to N51b. Their debt of N51b is roughly 67% of the company’s Net Assets but just 6% of its Market Capitalization. However, rising finance cost is bound to affect profits in the near term as revenue from new investments may not materialize soon enough. Finance Cost of N3.8b is almost 12% of the company’s operating profit, though manageable and lower than my trigger of 15%, if not curtailed may start to eat deep into the company’s cash reserves and ability to fund new investments. This already show in its cash reserves, down 79% to N4.5b (from N21.8) in just six months.

Profit After Tax

Despite spike in interest cost the company was still able to grow profits by 7% to N24.6b in the first 6 months of 2012. Nigerian Breweries, with its dominance in the beverage market in Nigeria will continue to face pressure to grow profits not just by growing in numbers or value but by its efficiency. For example, whilst profit after tax rose 7% to N24.6b compared to the same period last year, Profit Margin was down 13.5% to 18% of sales. Profit Margin a metric for how efficiently management was able to earn from sales will dip if cost is allowed to increase.

          Chart from www.expresson-line.com

Bottom Line

Nigerian Breweries gets my black ink for beating earnings results in comparative terms. The stock is one every Investor must strive to have based on past results and consistency. The future looks a lot more competitive for the company with the entry of SAB Miller and renewed drive by state government’s to revive their ailing beer companies. But then, this is Nigerian Breweries and then local consumption for alcoholic and non-alcoholic drinks doesn’t seem to be dropping topping 2.9% of what Nigerian’s spend annually (2010 estimates). For new buyers, an entry price of N117 may be pricey given its price earnings ratio of over 23x. For the buoyant, that price may not matter much if you consider value and balance it can bring to a portfolio. But for the kobo Investor, the thirst to own an NBL stock may just be too pricey to quench.