Nigerian Breweries is facing a barrage of issues that could lead to the firm recording a dip in profit, when compared to the prior year. Competition from other firms, weak macroeconomic environment and excise duties are kicking in. Nigerian Breweries is our stock pick for the week.
About the firm
Nigerian Breweries Plc was incorporated in 1946 as Nigerian Brewery Limited. The firm was listed on the Nigerian Stock Exchange (NSE) in 1973, and is the biggest brewer by market capitalization.
Recent Results
Results for the nine months ended September 30, 2018 show that revenue fell from ₦270 billion in 2017 to ₦254 billion in 2018. Profit before tax also dropped from ₦34.4 billion in 2017 to ₦22.4 billion in 2018. Profit after tax also dropped from ₦24 billion in 2017 to ₦14.7 billion in 2018.
Pricing
Current Share Price: ₦88
Year Low: ₦84
Year High: ₦152.68
Year to Date: -34.77%
One Year Return: -40.4%
Price Outlook
The stock is currently trading at 4.7% above its year low of ₦84. Possibilities of the stock trading significantly higher are quite low. Q3 2018 results show a marked drop, compared to the comparative period of 2017.
The stock market has been trading at a low, and foreign investors that typically hold the stock have largely exited the market.
Valuation
At a PE ratio of 29.46 times earnings, the stock is trading at three times the average PE ratio on the NSE.
The stock is also one of the most expensive among its peers. Guinness Nigeria is trading at 20.6 times earnings, while International Breweries is trading at 31.9 times earnings. Stocks in this sector, however tend to trade at a premium, as investors regard them as blue chips.
Outlook
The company has underperformed in the last three quarters of the year, and the fourth quarter may not be different even though it is traditionally a strong one for most brewers due to the festive activities that take place.
First quarter results show revenue dipped from ₦91.2 billion in 2017 to ₦82.9 billion in 2018. Profit after tax also dropped from ₦11.4 billion in 2017 to ₦10.2 billion.
Second quarter results showed a slight dip in revenue from ₦95.3 billion in 2017 to ₦95.2 billion in 2018.There was a steeper decline in the bottom line, despite lower finance costs. Profit after tax fell from ₦12.3 billion in 2017 to ₦8.2 billion in 2018.
In the third quarter ended September 30, 2018, revenue fell from ₦78.1 billion in 2017 to ₦71.3 billion in 2018. The firm made a loss before tax of ₦5 billion as against a profit before tax of ₦369 million in 2017. Loss after tax stood at ₦3.6 billion as against a profit after tax of ₦259 million for the corresponding period in 2017.
The brewer may be showing facing stiff competition from other operators in the sector.
Economic conditions in the country remain weak, and excise duties are scheduled to go even higher from next year.
Investors would be better off waiting for a reversal in top and bottom line decline, before taking a position.
