Champions Breweries has made a fortune for some investors in the past one year having risen from N2.7 in July 2014 to about N15 by October of the same year. The market massacre of December 2014 sent the stock plunging to under N5 by December before rallying back to about N7 by beginning of 2015. It hasn’t gone past N8.20 since this year and has continued to oscillate between its support of about N6.9 to is resistance of just above N8. So what next for this stock and why the hype?
Why the hype?
Champion Breweries is mostly owned by Raysun Ltd a vehicle owned by Heineken. Heineken is also a majority shareholder in Nigerian Breweries Plc, a company that just acquired Consolidated Breweries. So for many speculators, this may just be another merger in the making. After all, the company just turned out a profit in Q1 this year and still has a long way to go if it is to remain profitable.
As such, if profits are not the way out, then something else has to justify the hype that has been associated with the share price. Last year, a rights issue and a capital reconstruction propped its share price, this year it could well be a merger.
Why merge?
Champions like we mentioned is a subsidiary of Heineken Group. The company ironically does not sell that much beer, making it difficult for us to see value brand attraction as a possible acquisition trigger for Nigeria Breweries. However, the company does have something NB needs, Contract Brewing and packaging. Champions 2014 FY results showed the company made N2.5billion in sales from Contract Brewing and packaging out of the N3.3 billion in made in total sales. In fact, the entire sales of N2,516,282,000 it made from Contract Brewing and packaging was to Nigeria Breweries. This therefore presents a form of vertical integration opportunity for Nigeria Breweries and thus a potential target.
Other options
Raysun could also position the company as a leading Contract Brewing and packaging business servicing other customers other than Nigeria Breweries. It could cater for other companies within the Heineken Group within Nigeria and Sub-Saharan Africa.
It could as well continue with its “official” plans to expand its foot prints in the Southern region of Nigeria and promoting its only brand, Champion Lager.
Is this good enough for N14?
If we are to rely on fundamentals only, Champion Breweries we believe has no business trading at its current price. Stocks with results and retained earnings that is possesses are typically penny stocks. However, we live in an irrational market were valuation can be created out of nothing, nonetheless a rumored merger. A simple suspicion of a merger or takeover talk is enough to trigger a rally.
In addition, herd mentality could also play a single role in its valuation going forwards. If Nigeria Breweries, International Breweries and Guinness continues to rise, then we expect a similar uptick with Champions.
These are perhaps the only trigger for a journey to N14 and till then, shareholders can only hope that someone pulls it.
Disclosure – Nairametrics and the author of this article does owns shares in Champion Breweries Plc and does not plan to buy shares in Champion Breweries Plc in the next 48 hours. The author of this article wrote it themselves, and did not write this article on behalf of Champion Breweries Plc , its associates or representatives. The article is purely their opinion.
