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Investors in Budweiser’s International Breweries wail as N163 billion is wiped out of market value.

About 20 months ago, January to be precise, if you were to buy an International Brewery Stock, you would have to part with about N64 per share.

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About 20 months agoJanuary to be precise, if you were to buy an International Brewery Stock, you would have to part with about N64 per share. It was the highest share price in about 5 years and in some ways, it signaled the dominance of the Budweiser in the value beer segment.  

After making significant inroads with the likes of Hero Beer and Trophy Lager, the introduction of Budweiser, the self-acclaimed king of beers suggested that the beer war was theirs to win. While they seem to be winning both the war and the customers, they are losing on two other fronts – bottom line and share price. Unfortunately, this is where it really hurts as it gives shareholders reasons to doubt the company’s strategy. 

International Breweries’ share price has fallen by a whopping 60.7% year to date, making it the worstperforming stock on the Consumer Goods Index. Opening the year with a share price of N31.50, the stock fell to a 5-year low of N12 per share by Friday, 9th of August 2019. In this year alone, shareholders have seen about N163 billion wiped out of its market share.  

Its counterparts Guinness and Nigeria Breweries jave also lost 42.5% and 41.5% respectively year to date.

What exactly is wrong: International Breweries business strategy to fight off competition from Guinness and market leader, Nigerian Breweries has been to start a price war and focus on cheaper beer, often termed value segment by industry analysts. Unfortunately, this strategy comes at a steep cost despite its immense benefits. 

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[READ ALSO: Coca-Cola may join the Nigerian “beer war” soon]

In its half-year June 2019 interim report, International Breweries reported strong revenues of N68.6 million, 29% higher than what it reported same period in 2018.  

  • On a quarterly basis, the company’s revenue has topped N30 billion every quarter since Q2 2018. In fact, International Breweries is now on track to overtake Guinness as the second-largest beermaking company in Nigeria.  
  • Despite these giant strides, margins have continued to shrink. For example, for every N100 in sales, it spends N69 as direct cost. And out of the balance of N31, it spends another N15 on marketing and promotion, as well as N20 on operating expenses, leaving it with an operational loss.  
  • On paper, the company does not generate enough revenues to pay for its humongous N225 billion loans. 
  • Still, it managed to service interest, spending over N7 billion in the first half of this year alone. To do this, the company simply owed its suppliers, increasing liabilities to N89.3 billion from N53.9 billion. 

[READ MORE: $14 billion Dangote Refinery: uncertainty surrounds take-off]

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What this means: AB InBev, the parent company of International Breweries owns about 72% of the company while the other partners own 28%. Retail investors or minority shareholders obviously have little say in the direction the company is currently going. As they continue with their two-prong strategy of price war and cheaper brands, they will continue to lose money. But there are two major options the company could undertake which will provide the same results, thus presenting an opportunity for optimists 

  • At some point, International Breweries will need to raise capital to repay its huge loans. This could trigger a share price rally if it decides to take this route. 
  • It could as well decide to go private and buy out minority shareholders. This route, though expensive, is very plausible. 
  • It is also the favoured playbook of most foreignowned companies on the Nigerian Stock Exchange.  
  • By the time it does decide to take this route, the share price could be trading below N10.  

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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ENDSARS

Just-in: South-West Governors say attacks in Lagos were attempts to weaken the region’s economy

South West governors have they described the coordinated attacks in the state as an attempt to weaken the region’s economy.

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Governors of the South-West states have pledged their supports to their Lagos State counterpart, as they described the coordinated attacks in the state as an attempt to weaken the region’s economy.

This was disclosed by the Chief Press Secretary of the state, Gboyega Akosile, during the visits of the Governors and the Federal Executive Council members from SouthWest to the public assets and private properties destroyed in last Wednesday’s arson in the state.

He tweeted, “Shock! This was the expression on the faces of the Federal Executive Council (FEC) members from Southwest and Governors as they toured the public assets and private properties destroyed in Wednesday’s coordinated arson in Lagos State.

“The delegation of Governors and Ministers was personally received by Sanwo-Olu at the State House in Marina, where the Lagos helmsman showed them the pictorial evidence of the violence before visiting some of the torched assets.”

At a joint press conference held after the tour, Chairman of Southwest Governors’ Forum and Ondo State Governor, Arakunrin Rotimi Akeredolu, SAN, compared the scenes to a war zone, given the extent of the destruction.

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According to him, the violence that resulted from the EndSARS protest left much to be desired, stressing that there was an agenda beyond the youth demonstration against police brutality.

He said, “We are deeply concerned with the ease with which public buildings, utilities, police stations, and investment of our people have been burnt despite the proximity of security agencies in those areas.

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What this means: From all indications, it is obvious that the South-West Governors believed that the said attack, which were rumoured to have been carried out by suspected hoodlums, were sponsored by some people to deliberately disorganize the region’s economy.

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Business

#EndSARS Protest: 80 BRT buses worth N3.9 billion were destroyed by hoodlums – LASG 

The Lagos State Government disclosed that the 84 BRT vehicles destroyed by the hoodlums cost a total of about N3.9 billion.

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The Lagos State Government has revealed that 27 of the burnt Bus Rapid Transit (BRT) vehicles in the Oyingbo and Ojodu Berger areas of the state cost $200,000 each, while 57 of them cost $100,000 each, all totaling about N3.9 billion.

This statement was made by the Lagos State Government on Friday, after evaluating the extent of damage made to the Bus Rapid Transit (BRT) vehicles.

What you should know

Few days ago, hoodlums hiding under the cover of #EndSARS protests allegedly attacked and razed the Oyingbo BRT terminal, with several buses burnt. Nairametrics reported that Primero Transport Services Ltd (PRT), the owners of BRT buses said they have lost over N100 million in 6 days due to the #EndSARS protests.

The State’s Commissioner for Information, Mr. Gbenga Omotosho, in an exclusive interview with Punch, disclosed that:

  • 23 big BRT buses were razed down, while 57 medium-size BRT buses were affected by the violence, which brings the total of the BRT vehicles destroyed to 80. 
  • 23 of the 80 BRT buses burnt by the hoodlums were at Ojodu, while the remaining  57 were at the Oyingbo area.  
  • The big buses cost around $200,000 each, while the medium-size ones cost around $100,000 each.

What they are saying 

Mr. Omotosho said, “As I speak, the Governor and some of us are going around the state from one facility to the other. We are also visiting private facilities. Some of the places were the Oregun Vehicle Inspection Service office, the BRT park at Oyingbo, and the terminus at Ojodu Berger. 

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“I don’t know how they planned it; the hoodlums left the old buses and went for the new ones. The new ones were worth billions of naira. 

“However, the cumulative losses incurred by the state are not ready yet. But it will be mind-boggling. It came on a scale beyond belief. We know that the police have apprehended suspects.”

What this means

The vehicles were purchased in dollars; So, the consistent decrease in the value of Naira is expected to edge the cost of these buses up, when denominated in Naira. 

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The Lagos State Commissioner for Information, Mr Gbenga Omotosho explained that with the current foreign exchange rate, the 80 destroyed BRT buses are now valued at N3.929 billion.

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Business

BREAKING: Lagos State reviews curfew again, now from 8pm to 6am

Governor Babjide Sanwo-Olu has once again reviewed the curfew in the state to now commence between 8 pm to 6 am.

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4 key points in the new Lagos 2020 Land Use Charge, Lagos offers tech founders N250 million seed fund, cuts stringent access , Governor Sanwo-olu launches 14 ferries to tackle gridlock, says Okada ban irreversible, ride-hailing

The Lagos State Governor, Babajide Sanwo-Olu, has further reviewed the curfew earlier imposed on the state to help contain the large scale violence following the hijacked #EndSARS protests against police brutality and extra-judicial killings. The curfew now starts at 8 pm and ends at 6 am daily.

This is coming 2 days after the Governor had eased the 24-hour curfew to start from 6 pm to 8 am daily.

This disclosure was made by the Lagos State Commissioner for Information and Strategy, Gbenga Omotoso, on Sunday, October 25, 2020.

The Commissioner in his statement said, “The curfew in Lagos State has been reviewed. Restriction time is now 8 pm to 6 am. Lagosians are enjoined to plan their journey times as they go about their lawful businesses. Public schools remain shut till further notice.”

What this means

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This new review gives Lagosians an extra 4 hours to go about their daily activities.

What to expect

The Lagos State government will keep on reviewing and relaxing the curfew, as long as the security situation does not spike again.

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Details later…

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