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Market Views

Brewery sector: A quarter to forget

Beer makers saw their revenues plummet in the second quarter of 2020 as the economic shut down extinguished sales.

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Nigeria Breweries Plc, Guinness, International Breweries

The quarter ending June 2020 will be one to forget for Nigeria’s struggling brewery sector. Whilst the negative effect of COVID-19 is still being reported across every sphere of the economy, the brewery sector was always one of those that were expected to suffer the most.

The latest results from two of the industry giants, Nigeria Breweries and International Breweries confirm our worst fears. Combined revenues for both companies was N93.9 billion, representing a 22% drop year on year. Both companies reported revenues of N120, 4billion in the corresponding quarter of 2019.

Disaggregated, Nigeria Breweries reported a 21% drop to N68.6 billion and International Breweries 24% drop in revenues to N25.2 billion. Guinness is yet to release its quarter ending June 2020 results which happens to be its year-end. Ahead of its release, the company issued a profit warning as it anticipated the worst. The drop in revenues recorded in the Brewery sector is not a surprise. With most parts of the country in complete economic lockdown, beer sales are expected to drop significantly.

READ MORE: Nigeria’s triangular beer war on the rise with the arrival of Budweiser

As expected, the fall in revenues crashed margins significantly. While Nigeria Breweries was able to eke out a tiny N70 million in pre-tax profits, International Breweries lost N4.2 billion. Nigeria’s Breweries actually fared worse when you consider that they reported a N7.9 billion in 2019 and N12.3 billion in 2018. Could it get any worse?

Beer companies have always posted some of their best revenues in the second quarter of the year and struggle in the third. With results this bad already in the second, things could only get worse in the third quarter. Though, economic activities are gradually picking up, entertainment life which it heavily relies on remains in comatose.

The industry has been struggling with dwindling sales and thin margins for years as younger Nigerians ditch beer for spirits, which are often cheaper, do not bloat the stomach and are quicker to intoxicate. Increase in beer sales are also seemingly positively correlated with an uptick in social events such as weddings, parties and birthday ceremonies. Hotels, bars, clubs and most entertainment centres remain shut since March. Some are expected to reopen in the coming weeks as the government eases lockdown. But till then, beer making companies are clutching on straws.

READ ALSO: Guinness Nigeria boss reveals factors pulling company’s profit

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COVID-19 could be blamed for the industry’s woes, but a changing demographic still poses an existential threat to the sector. In fact, COVID-19 only showed how urgently they need to pivot away from relying on outdoor events to drive sales. Beer drinking is purely consumer product and needs to be pitched as such.

Rather, than advertise beer as a drink for bars during live events, it should be sold as a “must-have” beverage in the evening during family time. It should also be pitched as a must-have staple for house parties and close family gatherings or even casual remote working settings. The packaging should also gear off for a makeover. Beer dispensers anyone?

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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Financial Services

PayPal post its strongest Q1, with net profits of $1.10 billion

PayPal currently has 392 million active accounts with net profit in Q1 rising to $1.10 billion.

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PayPal acquires shopping browser extension company for $4 billion

The fintech juggernaut posted impressive growth in its revenues in Q1 bolstered by the growing usage of the digital economy. PayPal stated it had revenues of $6.03 billion in Q1 and earnings per share of $1.22, which outperformed market analysts’ forecast of $1.01.

Altogether PayPal currently has 392 million active accounts with net profit in Q1 rising to $1.10 billion from $84 million a year earlier.

The company is riding high taking into consideration that online shopping hit a record high spurred by COVID-19, though some market pundits argue that such could change as the pandemic eased. Still, PayPal’s stellar performance does not look likely to succumb to that prediction anytime soon.

READ: Google riding on hot steam, as earnings growth surges by 23%

Highlights of PayPal Q1 earning results

  • Earnings per share: $1.22, adjusted, vs. $1.01 per share expected in a Refinitiv survey of analysts.
  • Revenue: $6.03 billion vs. $5.90 billion expected by Refinitiv.
  • Total payment volume: $285 billion vs. $265 billion expected in a FactSet survey.

“Our strong first-quarter results demonstrate sustained momentum in our business as the world shifts into the digital economy,” said CEO Dan Schulman in a statement.

READ: iPhone users top 1 billion, Apple posts revenue of $111.4 billion

The company’s impressive performance was also reflected in the addition of 14.5 million new active accounts, with 1.5 million new merchant accounts included, bringing the total merchant accounts to 31 million globally.

“Our record-breaking first quarter results underscore the ongoing strength, diversification, and relevance of our scaled, two-sided, global payments platform. We are raising our FY’21 guidance based on these strong results.” John Rainey the CFO added.

READ: U.S customers can now buy Cryptos with Paypal

Consequently, Paypal has upgraded its service offerings with the option of the ability for splitting up purchases and paying them off for a period of time as well as the ability to purchase and sell, Bitcoin, Ethereum, Litecoin, Bitcoin Cash.

Recent price actions reveal PayPal rose as high as $259.55 in extended New York trading after the announcement was made thereby posting gains of 4.65%.

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Market Views

Economic summary: Crypto, Inflation & SIM Card Policies for the past week

Getting up to an eventful week ahead, these are the things you should know.

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Foreign investors demand for Nigerian stocks increases to N38.98 billion, Nigerians reveal why they pick their favourite banking stocks

Last week was interesting and we tracked some notable events in the economy and markets that would likely have an impact on your money this week.

Economic Indicators

The National Bureau of Statistics released its monthly inflation figures and it is pretty clear that inflation in Nigeria is going only one way — up. Inflation rate stands at 18.17% for the month of March, rising from 17.33% in February. Food inflation currently stands at 22.95%. The macro environment looks particularly gloomy for the average man with rising inflation eroding purchasing power.

READ: Nigeria’s inflation rate rises to 17.33% in February 2021, highest in four years

What we find the most significant is how this will affect investors. With inflation heading towards 20%, it is going to be increasingly difficult for fund managers and investors to earn decent returns on their investments. A few weeks back,  it was stated that the CBN had no real concern with inflation because it was caused by other related factors. We believe it is the right time for the Central Bank to step in by raising interest rates and mopping the excess liquidity in the economy.

The Central Bank last week announced that it was including wheat and sugar on the foreign exchange restriction list. Recall that the CBN had listed 41 items placed on the FX restriction list in 2015, then added maize to the list in 2020.

With existing players like Dangote Sugar, the CBN believes that Nigeria has enough or should have enough capacity to meet local demand.

READ: Biden tax opportunity for Nigeria

Fixed Income

Last week, The Debt Management Office (DMO) announced the offer of N150 billion bonds for subscription by auction in the month of April on behalf of the Federal Government. We reported two weeks ago that bond prices were falling as the yield was rising. As at April, 15th, the S&P FMDQ Nigerian Sovereign Bond Index was -22.07% YTD.

Nigerian investors can still capitalize on decent yields in the bond market. The total subscription received from investors for the bonds was N333.48bn comprising N65.25bn for 16.2884% FGN March 2027 bonds; N110.19bn for 12.5% FGN March 2035 bonds; and N158.04bn for 9.8% FGN July 2045 bonds.

Cryptocurrency and volatility

The cryptocurrency market had a bullish week till yesterday when sell-offs in the market ensured that coins like Ethereum dropped by about 21.46%. Olumide Adesina, a market analyst and cryptocurrency expert, called it a “bloody Sunday.” In a Twitter Spaces conversation with Ugodre Obi-Chukwu on Saturday, he discussed how the market was overheating and the bullish run was unsustainable. Despite the losses yesterday, there is still a lot of upside on cryptocurrencies and many experts remain bullish long-term.

For whoever is willing to invest in this asset class, the rule of thumb is to only invest money you can part with and do your research.

READ: Cryptocurrency: FG should set up presidential commission on cryptocurrency – ACCI

Other related news:

FG lifts suspension of issuance of new sim cards

The FG lifted its ban on new sim cards for telco players last week. This had previously been halted by the Federal Ministry of Communications and Digital Economy last December. Without a doubt, this is good news for stakeholders in the industry as analysts had predicted that the ban would affect the growth of the sector.

From the government’s perspective, it begs the question,  what was the need to issue a ban on new sim cards in the first place?

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