Event
Nigerian Breweries (‘the Group’) reported a moderate topline growth in Q3 2023. Revenue grew by 4% to N124.38 billion from N119.36 billion in Q3 2022. The growth was chiefly underpinned by price increments, as volume declined during the period. In our view, the decline in volume was due to the heightened strain on consumer disposable income. This volume decline precipitated a modest uptick of merely 1% in the Group’s cost of goods sold, elevating it to N84.15 billion from N83.57 billion in Q3 2022, despite the unabating inflationary pressures.

The heightened interest rate environment resulted in a robust 258% year-on-year surge in finance income and a substantial 150% escalation in finance cost. Despite the prevalent foreign exchange volatility during the quarter, we believe the Group hedged its FX position, thereby, marking a noteworthy 49% reduction in FX losses. However, the overarching result was a 50% uptick in the Group’s net finance cost, reaching N9.20 billion from N6.15 billion in Q3 2022.
The Group sustained a net loss, with the after-tax loss surging by 141% to N9.60 billion from N3.99 billion loss reported in Q3 2022.

Outlook
The Group is notably affected by the contracting purchasing power of consumers due to escalating inflationary pressures. As a result, we revise our stock valuation to reflect the subpar Q3 2023 performance. Our previous valuation factored in a sustained volume improvement in Q3 2023, as with Q2 2023 following the suspension of the Naira redesign policy. This was expected to be complemented with price increases, ensuring discernible revenue growth in Q3 2023.

Our FY 2023 revenue projection now stands at N571.90 billion (previous: N602.53), accompanied by a revised fair value for the stock at N41.61 (previous: N55.53). At the current stock price of N37.10, the stock offers a 12% premium to our revised fair value. Overall, we recommend a HOLD.

Please follow the link “Nigerian Breweries Q3 2023 – Volume Decline Underpinned by Weak Purchasing Power Exacerbates Net Loss” to view the whole report.

Thank you.