Nigerian Breweries Plc, the Company, faced a challenging operating environment in Q2 2023, just as it was recovering from the impact of lower sales during the Naira crunch in Q1 2023. FX losses overshadowed the relatively solid underlying performance in Q2 2023. Revenue grew by 13% year-on-year, reaching N154.07 billion – a development attributed to pricing benefits. On a quarter-on-quarter basis, revenue surged by a significant 25%, signaling a recovery from the sales decline in Q1 2023.

The Group’s gross margin expanded by 300 basis points to 44% (Q2 2023: 41%). Similarly, operating margin expanded to 17% in Q2 2023 – the highest operating margin recorded in a Q2 since 2017.

Due to the policy that led to exchange rate adjustments in the economy, the Company incurred significant FX losses stemming from its foreign currency obligations, such as payables and debts. The FX losses incurred in Q2 2023 amounted to a staggering N70.62 billion, resulting in the Company closing the quarter with a loss before tax of N50.28 billion.

Of particular concern is the Company’s negative operating cash flow generated in Q2 2023. Cash flow from operations stood at a negative N14.84 billion. It’s noteworthy that cash flow from operations was also negative in Q1 2023, totaling N67.87 billion.

These trends have contributed to an increase in the Company’s debt levels. As of H1 2023, the gearing ratio (debt-to-equity) has risen to 2.08x (compared to FY 2022: 0.68x). Although this figure remains below the industry average, the sharp increase is concerning, as it implies heightened financial risk.


The Company has faced a challenging operating environment over the past five years. Key issues affecting its financial performance includes decline in consumer disposable income, high operating costs, and regulatory pressures. In the short term, we anticipate the Company will continue to strategically raise prices to counteract rising input costs. However, we do not view this strategy as sustainable because consumers are expected to react at some point. Furthermore, our analysis indicates that demand for alcoholic products is quite elastic.

Recently, Company management announced plans to acquire an 80% stake in Distell Wines and Spirits Nigeria Limited. Distell Nigeria is involved in local wine and cider production, as well as the importation of wines, spirits, and flavored alcoholic beverages from the Distell Group in South Africa.

In our opinion, this strategic move is a wise decision by Nigerian Breweries, positioning the Company to strengthen its market share leadership and enhance profitability. This move also provides an opportunity for the Company to enter the spirit segment, which is known for higher margins and less competitive pressure. We are still awaiting complete clarity on this corporate action, so the exact impact on the Company’s fortunes remains uncertain.

Despite the significant losses incurred in Q2 2023 and the expectation of no dividends in FY 2023, we maintain our BUY recommendation for the stock at N55.23. While we acknowledge the short-term challenges, we believe the medium to long-term outlook is positive. More importantly, we believe that investors have oversold the stock, creating an attractive entry opportunity at the current market price.

Please follow the link “Nigerian Breweries Q2 2023 – Attractive Entry Opportunity Despite Short Term Macro Headwinds” to view the whole report.

Thank you.

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