Nigerian Breweries Plc (‘the Company’) reported N3.98bn net loss in Q3 2022 despite a 19% YoY revenue growth to N119.36bn. The Company’s performance was in line with the trend among consumer goods companies, where strong topline performance did not reflect in the bottom-line.
The reasons for this trend across consumer goods companies are the high cost of sales due to rising raw material prices and high operating expenses due to inflationary pressure. For Nigerian Breweries, we attribute the 19% revenue growth to higher effective pricing and continued sale of premium brands with higher pricing. However, gross margin dipped by 300 basis points to 30% in Q3 2022 from 33% in Q3 2021 – a development we link to the Company’s inability to pass on increased production costs on consumers.
On aggregate, loss before tax stood at N6.60bn while loss after tax stood at N3.98bn.
Notwithstanding the weak performance on Q3 2022, the Company declared a 40kobo dividend. The dividend qualification date is November 23, 2022 while the payment date is December 1, 2022.
We expect the weak macroeconomic environment to constrain earnings in Q4 2022, albeit we think that there will be marginal improvement. Shrinking household consumption due to eroding purchasing power, inflationary pressures, and global supply chain disruptions remain key issues affecting the majority of the players in the consumer goods industry.
We revise our earnings per share (EPS) forecast for FY 2022 to N1.97 from our previous estimate of N2.45. The downward revision is due to higher-than-expected rise in input cost as we believe the cost pressure would remain in the near term.
However, we recommend a BUY for the stock. While noting the current challenges that negatively impact the Company’s financial performance, we believe that the stock is oversold and that the current market price provide an attractive entry point.
Please follow the link “Nigerian Breweries Plc – Cost Pressures Erode Profitability” to view the whole report.
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