Much like Guinness Nigeria, Nigerian Breweries in its third-quarter made a significant rebound in Revenue to ₦82.2 billion, surpassing both our Q3’20 expectation by 23% and its Q3’19 performance by 26%. Supported by this, 9M’20 Revenue came in flattish (+1% y/y), dragged by its dismal H1 results.
Following the gradual easing in the economy in the past quarter and the phased return of social drinking activities, we believe that these Q3 numbers were mostly supported by increased volumes.
Consequently, with Q4 traditionally being the strongest quarter due to the customary festivity – albeit at a mildly reduced scale due to the pandemic – we foresee this positive momentum carrying on in the quarter.
Thus, we estimate a full-year revenue figure of ₦326.2 billion, a 1% growth from FY’19.
Continued Opex containment curbs earnings decline
In 9M’20, Gross margin weakened 3ppts, largely reflecting the higher costs of sourcing raw materials induced by challenges in the local supply chain as well as the FX market. Opex for NB declined by a sharp 5% y/y in the period, driven mainly by cost containment in distribution expenses as admin expenses for the period rose by 11%.
EBIT, however, declined 10% y/y to ₦22.5 billion, influenced by weaker gross margins. Given the expectation of continued shortages in the FX market and hike in energy costs, we project a mild increase in input costs as well as other operational expenses. On the other hand, we expect to see further cost savings from the company’s new distribution strategy, in line with Q3 performance.
Thus, we expect Opex for FY’20 to close in the same pattern as the nine-month period and to print at ₦94.9 billion (-2% y/y), bringing our FY’20 EBIT expectation to ₦30 billion. Reflecting the increased borrowings since the beginning of the year, Nigerian Breweries’ finance costs for 9M’20 soared by 43% y/y to ₦11.7 billion, containing PBT at ₦11.0 billion (9M’19: ₦17.2 billion). After adjusting for taxes, PAT for the period came in at ₦7.0 billion (9M’19: ₦12.3 billion).