Take a sit, relax and here…. have a cold beer. Except that it is not one of your regulars. This one is called Castle Beer and by the way they have Castle Milk Stout if you care. The Nigerian Beer market is set for a massive competition and boy haven’t we been over due. A market currently dominated by the likes of Nigerian Breweries (Heineken) and Guinness (Diageo) with 64% and 33% market share respectively makes the grand entry of SAB Miller simple a no brainer.
SAB Miller, the worlds second largest Brewer?second only to AminBev (owners of Corona, Stellar, Budweiser) and their entry into Nigeria is whether they admit it or not is a defensive tactic designed to protect their territory from the seeming expansion of the likes of Heineken and Diageo. Nigeria is Africa’s second largest beer market (South Africa is first) and is estimated to be growing at about 6% per annum. Nigeria’s Per capita consumption of beer is also estimated at about 10liters per year compared to South Africa’s 60 liters according to SAB Miller website.
For a hawkish investor, information like this is treasure map and more often that not leads to where the money is. SAB Miller has invested in about 4 breweries in Nigeria but only one is notably quoted on the Nigerian Stock Exchange. International Breweries Plc have been in the Nigeria market for years but without much growth to bottom line. That trend seems to have reversed with the acquisition by SAB Miller last year. In fact if you had invested N1m in SAB Miller by August last year, when they opened the brewery in Onitsha, that money would be worth N3.2m today, a whopping 323% increase in value.
Whilst market sentiments and the bullish nature of the Stock Exchange may have had a part to play in this, the company fundamentals currently does a lot to sustain the rally. ?Revenue jumped 31.3% year on year at the end of their 3rd quarter 2012. Operating profit on the other hand increased a whopping 130% year on year despite a surge in operating expenses. Much of their efficiency was their ability to maintain a modest 7% increase in cost of sale despite a triple digit increase in revenue. Debt is also very low as finance cost remain below 4% of Operating profit. Operating cashflows are equally strong at over N3billion and Net Assets more than doubling in just 9 months.
A healthy balance sheet, if nothing is what SAB Miller may have provided as well even as the company continues to project growth in revenue. They forecasted an additional N6b to top line revenue for the period between October and March 2013. Though not the kind of rapid growth that is inline with its bullish stock price, still it is in line with current trends.
Not all beer tastes nice and certainly the figures in their financial statement are not without apprehension. They still retain a negative working capital of about N3b following their Q3 unaudited results as trade payables soared 400% to N14b in just 9 months. The accounting impact of their huge investment in plant and machinery ay take its toll in the coming years they begin to write down cost of wear and tear on their assets. For now though, relax and enjoy the moment and remember to put your money where your mouth is as you sip.
See International Breweries 2012 official third quarter results here