A small production line and limited distribution may leave Champion Breweries squeezed by brewing giants in the country. Champion Breweries is our stock pick for the week.
About the company
Champion Breweries Plc was incorporated on 31st July 1974 as a private limited liability company under the name, South East Breweries Limited. This was changed to Cross River Breweries Limited and then its current name. It was converted to a public limited company in 1992, and listed on the Nigerian Stock Exchange on September 1, 1993.
Raysun Nigeria Limited (a subsidiary of Heineken) holds 60% of the company’s issued share capital.
The principal activity of the company is to carry out the business of brewing and marketing alcoholic and non-alcoholic beverages in Nigeria, as well as provide contract brewing and packaging services.
Results for the half year ended June 2018 show that revenue dipped slightly from N2.2 billion in 2017 to N2.1 billion in 2018. Profit before tax also dropped from N122 million in 2017 to N116 million in 2018. Profit after tax also fell from N86 million in 2017 to N80 million in 2018.
Current Share Price: N1.91
Year High: N3.22
Year Low: N1.84
Year to date: -8.17%
One Year Return: -29.39%
Chances of going up or down
Champion Breweries is currently trading at a price-earnings ratio of 28.1 times earnings. While this is nearly 4 times the average PE ratio on the NSE, it is in line with other stocks in the sector. Nigerian Breweries is trading at 30 times earnings, while International Breweries is trading 34 times earnings.
The bearish trends in the market may mean that the stock is unlikely to witness any significant upside soon.
Competition in the breweries sector has heightened greatly. Operating with two products distributed in a few regions of the country leaves the company with limited room for growth.
Competitors are either expanding their production capacity or introducing new brands. International Breweries is billed to open its Shagamu brewery soon. Nigerian Breweries introduced Stella and Tiger lagers into the market.
They also have much larger revenue. Half year results for Nigerian Breweries show that the brewer made N183 billion in sales. International Breweries in its half-year results for the period ended June 2018, made N52 billion as revenue.
Management of the company during its Annual General Meeting (AGM) last week had obtained shareholders approval to cancel its negative retained earnings against share premium. This would enable the firm to pay dividends in the near future.
Champion breweries may need to raise capital soon to either expand its product line up or distribution network.