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Sector update
Equity Research
19 March 2015
Beverages
Nigeria
Omair Ansari
+234 (1) 448-5329
[email protected]
Nigerian brewers
Cash is king
After conducting distribution and channel checks in Nigeria
recently, we came away with a more cautious view on volume
and pricing growth. With the worsening macro and expected
tighter rate environment, we raise our WACC assumptions and
compare Guinness Nigeria (GN) with Nigerian Breweries (NB) on
their cash positions. As a result, NB is still our preferred play in
Nigeria, but we downgrade our rating to HOLD (from Buy) and
lower our TP to NGN138/share (from NGN162). We maintain our
SELL rating on GN, but lower our TP to NGN99/share (from
NGN103).
Worsening macro
Investors are familiar with Nigeria’s current problems, but with inflation edging
upwards and another devaluation on the cards, we believe the operating
environment will become even tougher in 2015. Yvonne Mhango, our SSA
economist, forecasts core inflation of 13% with real wage growth moving further into
negative territory. Beyond core inflation eating into consumers’ disposable income,
the Nigeria Labour Congress (NLC) is now contemplating reducing the minimum
wage as it believes the level is unsustainable with current oil prices.
3Ds: Devaluation, distribution and debt
This year, the lack of pricing power at the brewers will likely hit operating cash-flow,
which we think will face pressure on the back of the devaluation. Furthermore, with
subdued demand, the credit facilities that the brewers provide to their distributors
could lead to a longer cash-conversion cycle. NB’s negative cash-conversion cycle
places it in a stronger position than GN. NB also has minimal debt vs GN whose
borrowing has increased 3x in 1H FY15 vs FY14.
GN to cut dividends
We analyse the funding requirements in FY15 for both GN and NB and conclude that
GN will have to cut its dividend pay-out ratio or come to the market to raise equity as
it faces a funding gap of ~NGN14.3bn, whilst NB has excess cash and will be able to
maintain its pay-out ratio, in our view.
Olaloye Oyawoye
+234 (1) 448-5328
[email protected]
Summary sector ratings and target prices
Nigerian Breweries
Bloomberg
NB NL
Target price, NGN
138
Previous TP, NGN
162
Current price, NGN
130
Upside potential
6%
Previous rating
Buy
Rating
HOLD
Guinness Nigeria
Bloomberg
Target price, NGN
Previous TP, NGN
Current price, NGN
Upside potential
Previous rating
Rating
GUINNESS NL
99
103
125
-18%
Sell
SELL
The pricing date in this report is as of close 17 March.
Source: Bloomberg, Renaissance Capital
Figure 1: NB: Summary valuation and financials
Dec-YE
2013 2014 2015E* 2016E
Net revenue, NGNbn 268,614 266,372 319,136 362,058
EBIT, NGNbn
69,171 66,861 69,007 82,958
Net income, NGNbn 43,080 42,520 50,615 58,152
EPS, NGN
5.70
5.62
6.36
7.31
DPS, NGN
4.50
3.50
4.44
5.10
EV/EBITDA, x
13.54 10.97 10.75 8.97
P/E, x
28.58 23.12 20.44 17.79
Div yield, %
2.76
2.69
3.41
3.92
*combined entity estimates
Source: Company data, Renaissance Capital estimates
Figure 2: GN: Summary valuation and financials
Jun-YE
2013 2014 2015E 2016E
Net revenue, NGNbn 122,464 109,202 114,553 135,157
EBIT, NGNbn
20,614 16,123 10,615 14,321
Net income, NGNbn 11,864 9,573 5,951 9,098
EPS, NGN
7.93
6.36
3.95
6.04
DPS, NGN
3.20
3.16
5.14
6.54
EV/EBITDA, x
13.68 8.35
6.78
5.75
P/E, x
31.65 29.73 31.88 20.86
Div yield, %
2.79
1.69
2.51
4.08
Source: Company data, Renaissance Capital estimates
Downgrading TPs, but still prefer NB
We downgrade NB to HOLD (from Buy) with a lower TP of NGN138/share
(previously NGN162), and maintain our SELL rating on GN and lower our TP to
NGN99/share (previously NGN103), on the back of higher WACC assumptions. We
believe 2015 will be one of the toughest years for the consumer in Nigeria and only
those companies with strong balance sheets and cash positions will be able to
weather the storm. As a result, NB remains our preferred brewer in Nigeria.
Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange
Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital.
Investment summary
Renaissance Capital
19 March 2015
Beverages
Consumer continues to struggle
We believe that 2015 will be one of the toughest years for Nigeria from a macro
standpoint, and even more so for the consumer. Yvonne Mhango, our SSA economist,
forecasts core inflation of 13% with real wage growth moving further into negative
territory. Beyond core inflation eating into consumers’ disposable income, the NLC is
contemplating reducing the minimum wage as it believes the level is unsustainable with
current oil prices. The minimum wage stands at NGN18k/month (~$80). Furthermore,
after speaking to some public sector employees, we found that wages have not been paid
so far this year for many people. Thus, we continue to believe the down-trending by
consumers will continue.
Figure 3: Nigerian inflation
Source: Nigerian National Bureau of Statistics
New hurdles
We understand that the struggling consumer story is not new in Nigeria; however, after
spending time with management and distributors, we believe that further hurdles will be
faced this year. Pricing strategy will of course remain a key focus, and unlike in 2009
when the devaluation in the naira was passed onto the consumer, we do not believe this
will be possible this time round. We forecast for price-mix gains of 0.2x CPI as a bestcase scenario without sacrificing the already subdued volumes. In addition, distributor
credit terms will have to be a key focus. Successful brewers and fast-moving consumer
goods (FMCG) companies in Nigeria are only able to achieve efficient and maximum
market penetration by providing credit facilities to their key distributors. Average credit
terms are between 45-60 days; however, we see a risk of this extending further this year.
Thus, the cash-conversion cycle becomes important for 2015 and NB appears to us to be
in a stronger position.
Figure 4: Cash-conversion cycle, days
GN
200
NB
150
100
50
0
-50
-100
-150
2011
2012
2013
2014
2015E
2016E
2017E
Source: Company data, Renaissance Capital estimates
2
Renaissance Capital
19 March 2015
Beverages
Devaluation in 2009
Although the devaluation in 2009 was passed onto the consumer, we look back to see
which company was able to better sustain margins in that environment. We believe NB
leads once again.
Figure 5: Operating profit margin
Figure 6: Net profit margin
GN
35%
NB
30%
NB
20%
25%
20%
15%
15%
10%
10%
Source: Company data
*Naira devaluation occurred in 4Q08
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
*Naira devaluation occurred in 4Q08
0%
1Q08
5%
5%
0%
GN
25%
Source: Company data
Not a year you want debt
Given the likely subdued operating income for 2015, we do not believe there will be any
unordinary capex; however, we believe GN will face pressure, given its high debt burden,
where borrowings tripled from ~NGN3bn in FY14 to ~NGN10bn in 1H FY15. Thus,
looking at interest coverage at GN vs NB, we see that NB is much better placed.
Figure 7: GN interest coverage
Figure 8: NB interest coverage
73.4x
520.7x
205.1x
26.1x
14.5x
2010
2011
2012
5.3x
3.6x
4.5x
2013
2014
2015E
Source: Company data, Renaissance Capital estimates
2010
2011
*In 2016E and 2017E, we project no debt
7.1x
10.0x
12.4x
10.7x
2012
2013
2014
2015E
Source: Company data
Funding gaps to emerge
With these issues on debt, devaluation and distribution we analysed the cash positions at
NB and GN along with their expected expenditures based on our estimates. The outcome
is clear to us: GN will face a funding gap this year, thus the possibility for its pay-out ratio
3
Renaissance Capital
19 March 2015
Beverages
to be cut is high from its average pay-out ratio of 75%. We believe that GN will either
need to raise equity to finance its debt obligations or cut dividends substantially. NB, on
the other hand, has sufficient cash to meets its obligations and maintain its historic payout ratio of 70%.
Figure 9: NB funded gap, NGNmn
36,759
34,037
5,973
150,907
80,801
114147
66,805
35,321
38,816
Interest
Income
Cash & cash
equivalents
Cash from
operations
Cash
available
Funded gap
Total
obligation
Debt
Capex
Dividend
Other
3,301
Source: Company data, Renaissance Capital estimates
Figure 10: GN funding gap, NGNmn
27,097
6,461
4,819
4,442
42,819
14,352
28,287
16,515
10,124
Cash & cash
equivalents
Cash from
operations
Other
Cash
available
Funding gap
Total
obligation
Interest
Dividends
Capex
Debt
6,291
Source: Company data, Renaissance Capital estimates
Still prefer NB over GN
This makes our case even clearer for our preference of NB over GN. However, given the
rising rate environment in Nigeria we have raised our risk free rate assumptions to 15%
from 13%, thus increasing our WACC for both companies. However, given the higher
proportion of debt for GN, our DCF is only slightly affected vs NB. Thus, we downgrade
NB to a HOLD (from Buy) with a revised TP of NGN138/share (from NGN162) and
maintain a SELL on GN with a TP of NGN99/share (from NGN103).
4
NB summary financials
Renaissance Capital
19 March 2015
Beverages
Figure 11: NB key ratios
Key growth ratios
Revenue growth
Gross profit growth
EBIT growth
EBITDA growth
Net profit growth
Total asset growth
unit
%
%
%
%
%
%
2013
6.3%
8.8%
7.1%
9.3%
13.2%
-0.3%
Proforma 2013
19.7%
19.9%
10.1%
-70.6%
15.8%
35.9%
2014
-0.1%
-1.6%
-4.2%
291.4%
0.5%
1.3%
2015E
5.6%
0.0%
1.2%
-1.1%
14.3%
12.1%
2016E
13.4%
16.3%
20.2%
18.4%
14.9%
6.2%
2017E
14.3%
15.7%
17.8%
16.9%
19.7%
8.3%
2018E
15.9%
17.5%
19.8%
18.8%
20.8%
9.4%
2019E
15.3%
17.0%
19.3%
18.3%
20.4%
9.9%
Margins
Gross profit margin
EBIT margin
EBITDA margin
Net profit margin
unit
%
%
%
%
2013
50.8%
25.8%
33.8%
16.0%
Proforma 2013
49.7%
23.5%
8.1%
14.6%
2014
48.9%
22.6%
31.6%
14.7%
2015E
46.4%
21.6%
29.6%
15.9%
2016E
47.5%
22.9%
30.9%
16.1%
2017E
48.1%
23.6%
31.6%
16.8%
2018E
48.8%
24.4%
32.4%
17.5%
2019E
49.5%
25.3%
33.2%
18.3%
Per share ratios
EPS
EPS growth
DPS
Dividends pay-out
Dividend yield
Year-end price
Cash per share
unit
NGN
%
NGN
%
%
NGN
NGN
2013
5.70
13.2%
4.50
79.0%
2.8%
162.8
1.26
Proforma 2013
5.68
12.8%
4.50
79.3%
2.8%
162.8
1.39
2014
5.57
-2.0%
3.46
62.2%
2.7%
130.0
0.72
2015E
6.36
14.3%
4.44
69.8%
3.4%
130.0
4.62
2016E
7.31
14.9%
5.10
69.8%
3.9%
130.0
5.66
2017E
8.75
19.7%
6.11
69.9%
4.7%
130.0
7.80
2018E
10.57
20.8%
7.40
70.1%
5.7%
130.0
10.80
2019E
12.72
20.4%
8.94
70.3%
6.9%
130.0
14.54
Balance sheet ratios
RoE
RoA
Debt/Equity
Net debt/EBITDA
Working capital/ Sales
Capex/ Sales
unit
%
%
x
x
%
%
2013
41.9%
17.0%
0.08x
0.00x
11.8%
12.3%
Proforma 2013
33.2%
14.7%
0.14x
0.07x
NA
13.0%
2014
25.7%
12.8%
0.14x
0.11x
2.6%
11.7%
2015E
26.9%
13.7%
0.09x
-0.09x
2.2%
10.7%
2016E
27.3%
14.4%
0.07x
-0.14x
0.8%
10.2%
2017E
30.0%
16.1%
0.06x
-0.20x
0.8%
9.7%
2018E
32.9%
17.8%
0.05x
-0.27x
1.1%
9.3%
2019E
35.8%
19.6%
0.05x
-0.34x
0.9%
8.9%
Working capital
Days of inventory outstanding
Days of receivables outstanding
Days of payables outstanding
Cash conversion cycle
unit
Days
Days
Days
Days
2013
57
19
193
-117
Proforma 2013
61
33
193
-99
2014
59
33
190
-98
2015E
59
33
194
-101
2016E
60
34
196
-102
2017E
61
35
196
-101
2018E
61
35
197
-101
2019E
62
36
198
-101
Du Pont analysis
RoE
Net margin
Asset turnover
Gearing
unit
%
%
%
%
2013
41.9%
16.0%
106.1%
246.1%
Proforma 2013
33.2%
14.6%
101.1%
225.3%
2014
25.7%
14.7%
87.1%
201.7%
2015E
26.9%
15.9%
86.2%
196.9%
2016E
27.3%
16.1%
89.7%
189.5%
2017E
30.0%
16.8%
95.6%
186.5%
2018E
32.9%
17.5%
101.7%
184.7%
2019E
35.8%
18.3%
106.9%
182.8%
x
x
x
x
2013
28.6x
11.0x
4.6x
13.5x
Proforma 2013
28.7x
7.3x
4.2x
52.3x
2014
23.4x
6.0x
3.4x
11.0x
2015E
20.4x
5.1x
3.2x
10.8x
2016E
17.8x
4.7x
2.9x
9.0x
2017E
14.9x
4.3x
2.5x
7.5x
2018E
12.3x
3.9x
2.2x
6.2x
2019E
10.2x
3.5x
1.9x
5.1x
Valuation
P/E
P/B
P/S
EV/EBITDA
Source: Company data, Bloomberg, Renaissance Capital estimates
5
Renaissance Capital
19 March 2015
Beverages
Figure 12: Nigerian Breweries (Post merger): Income statement, NGNmn (unless otherwise indicated)
Income statement Dec-YE
2013
Proforma 2013
2014
2015E
Revenue
268,614
302,528
302,322
319,136
Change
6.3%
19.7%
-0.1%
5.6%
Cost of sales
(132,136)
(152,151)
(154,347)
(171,214)
Gross profit
136,477
150,377
147,975
147,923
Change
8.8%
19.9%
-1.6%
0.0%
Gross margin
50.8%
49.7%
48.9%
46.4%
Operating expenses
(67,306)
(79,219)
(79,773)
(78,916)
Operating profit
69,171
71,158
68,202
69,007
Change
7.1%
10.1%
-4.2%
1.2%
Operating margin
25.8%
23.5%
22.6%
21.6%
Depreciation & amortisation
(21,740)
(24,428)
(27,409)
(25,531)
EBITDA
90,912
24,428
95,611
94,538
EBITDA margin
33.8%
8.1%
31.6%
29.6%
Interest (paid) received
-6,931
-7,486
-2,976
3,301
Transaction cost
-1,191
Profit before tax
62,240
63,672
64,036
72,307
Tax rate
30.8%
30.8%
30.8%
30.0%
Taxation
(19,160)
(19,615)
(19,739)
(21,692)
Attributable profit
43,080
44,058
44,296
50,615
Change
13.2%
15.8%
0.5%
14.3%
Ave shares in issue (mn)
7,563
7,761
7,960
7,960
EPS (NGN)
5.7
5.7
5.6
6.4
Change
13.2%
12.8%
-2.0%
14.3%
DPS (NGN)
4.5
4.5
3.5
4.4
Change
50.0%
50.1%
-23.2%
28.2%
Pay-out ratio
79%
79%
62%
70%
2016E
362,058
13.4%
(190,084)
171,974
16.3%
47.5%
(89,016)
82,958
20.2%
22.9%
(28,949)
111,907
30.9%
116
83,075
30.0%
(24,922)
58,152
14.9%
7,960
7.3
14.9%
5.1
14.9%
70%
2017E
413,806
14.3%
(214,760)
199,046
15.7%
48.1%
(101,299)
97,747
17.8%
23.6%
(33,069)
130,815
31.6%
1,713
99,460
30.0%
(29,838)
69,622
19.7%
7,960
8.7
19.7%
6.1
19.8%
70%
2018E
479,621
15.9%
(245,684)
233,937
17.5%
48.8%
(116,865)
117,073
19.8%
24.4%
(38,308)
155,380
32.4%
3,079
120,152
30.0%
(36,046)
84,106
20.8%
7,960
10.6
20.8%
7.4
21.1%
70%
2019E
552,791
15.3%
(279,089)
273,702
17.0%
49.5%
(134,028)
139,674
19.3%
25.3%
(44,128)
183,802
33.2%
4,988
144,662
30.0%
(43,399)
101,263
20.4%
7,960
12.7
20.4%
8.9
20.8%
70%
Balance sheet
PPE
Other non-current assets
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other current assets
Total current assets
Total assets
Deferred tax
Borrowings
Other non-current liabilities
Total non-current liabilities
Trade and other payables
Other current liabilities
Total current liabilities
Total equity
Total liabilities and equity
2016E
201,523
100,410
301,933
31,329
33,838
45,044
3,670
113,882
415,815
27,410
14,540
10,717
52,667
102,049
39,377
141,426
221,722
415,815
2017E
208,786
100,410
309,195
35,709
39,612
62,119
3,670
141,110
450,306
27,410
14,540
10,717
52,667
115,556
39,377
154,933
242,706
450,306
2018E
215,153
100,410
315,563
41,152
46,372
85,980
3,670
177,175
492,737
27,410
14,540
10,717
52,667
132,803
39,377
172,179
267,891
492,737
2019E
220,499
100,410
320,908
47,053
54,034
115,743
3,670
220,501
541,409
27,410
14,540
10,717
52,667
151,407
39,377
190,784
297,959
541,409
2013
153,366
54,108
207,474
20,643
14,212
9,529
901
45,285
252,760
21,830
9,000
9,275
40,105
69,833
30,463
100,296
112,359
252,760
Proforma 2013
176,999
100,410
277,409
25,428
27,447
10,758
3,670
67,303
344,712
27,154
23,540
10,277
60,972
80,499
31,123
111,622
172,118
344,712
2014
193,800
98,497
292,297
28,478
16,357
5,700
6,396
56,932
349,229
27,834
24,670
10,736
63,239
83,283
30,743
114,026
171,964
349,229
2015E
193,578
100,410
293,988
27,771
29,193
36,759
3,670
97,393
391,381
27,410
18,697
10,717
56,824
91,016
39,377
130,393
204,165
391,381
Source: Company data, Renaissance Capital estimates
Figure 13: Nigerian Breweries: Cash flow statement, NGNmn
Dec-YE
2013
Proforma 2013
NOPAT
47,863
Depreciation
21,740
Working capital
31,699
Capex
(33,125)
Operating FCF
68,177
Interest
Dividends
Debt
Other
FCF
Cash balance, bop
Cash balance, eop
2014
47,742
27,409
7,717
(35,482)
47,385
(2,976)
(27,544)
1,130
38,051
56,047
10,758
66,805
2015E
48,305
25,531
6,965
(34,037)
46,764
3,301
(35,321)
(5,973)
(38,816)
(30,046)
66,805
36,759
2016E
58,071
28,949
2,829
(36,894)
52,954
116
(40,595)
(4,157)
(35)
8,284
36,759
45,044
2017E
68,423
33,069
3,354
(40,331)
64,514
1,713
(48,638)
(514)
17,075
45,044
62,119
2018E
81,951
38,308
5,044
(44,675)
80,627
3,079
(58,921)
(924)
23,862
62,119
85,980
2019E
139,674
44,128
5,041
(49,474)
139,369
4,988
(71,196)
(43,399)
29,763
85,980
115,743
Source: Company data, Renaissance Capital estimates
6
GN summary financials
Renaissance Capital
19 March 2015
Beverages
Figure 14: GN key ratios
Key growth ratios
Revenue growth
Gross profit growth
EBIT growth
EBITDA growth
Net profit growth
Total asset growth
unit
%
%
%
%
%
%
2013
-10.8%
-8.5%
-21.8%
-3.1%
-19.3%
9.3%
2014
-8.5%
-13.7%
-22.4%
-20.1%
-19.5%
9.3%
2015E
4.9%
-6.3%
-34.2%
-35.6%
-37.8%
-7.8%
2016E
18.0%
22.2%
34.9%
29.2%
52.9%
3.4%
2017E
12.2%
12.7%
18.4%
16.5%
27.3%
5.1%
2018E
14.3%
14.8%
20.2%
18.5%
15.2%
7.3%
2019E
13.7%
14.3%
19.4%
17.8%
20.3%
7.8%
Margins
Gross profit margin
EBIT margin
EBITDA margin
Net profit margin
unit
%
%
%
%
2013
45.8%
16.8%
23.1%
9.7%
2014
49.0%
15.2%
19.9%
10.2%
2015E
42.0%
9.3%
14.0%
9.3%
2016E
43.5%
10.6%
15.3%
8.8%
2017E
43.7%
11.2%
15.9%
5.2%
2018E
43.9%
11.8%
16.5%
6.7%
2019E
44.1%
12.4%
17.1%
7.6%
Per share ratios
EPS
EPS growth
DPS
Dividends pay-out
Dividend yield
Year-end price
Cash per share
unit
NGN
%
NGN
%
%
NGN
NGN
2013
7.93
-17.7%
7.00
88.3%
2.8%
251.0
58.98
2014
6.36
-19.8%
3.20
50.3%
1.7%
189.0
60.75
2015E
3.95
-37.8%
3.16
80.0%
2.5%
126.0
61.09
2016E
6.04
52.9%
5.14
85.0%
4.1%
126.0
60.50
2017E
7.69
27.3%
6.54
85.0%
5.2%
126.0
62.05
2018E
8.86
15.2%
7.53
85.0%
6.0%
126.0
65.08
2019E
10.66
20.3%
9.06
85.0%
7.2%
126.0
68.54
Balance sheet ratios
RoE
RoA
Debt/ Equity (x)
Net debt/EBITDA
Working capital/ Sales
Capex/ Sales
unit
%
%
x
x
%
%
2013
25.6%
14.3%
0.26x
-0.11x
-2.7%
13.2%
2014
20.5%
7.5%
0.21x
0.39x
-8.9%
12.8%
2015E
13.0%
4.5%
0.16x
0.46x
3.6%
5.6%
2016E
20.0%
6.9%
0.10x
0.23x
0.3%
4.5%
2017E
25.2%
8.8%
0.10x
0.21x
0.2%
6.7%
2018E
27.4%
10.2%
0.06x
0.10x
0.3%
7.8%
2019E
31.8%
11.6%
0.06x
0.09x
0.2%
7.8%
Working capital
Days of inventory outstanding
Days of recievables outstanding
Days of payables outstanding
Cash conversion cycle
unit
Days
Days
Days
Days
2013
-68
50
-179
160
2014
-85
64
-194
173
2015E
-62
54
-167
158
2016E
-63
54
-171
163
2017E
-62
55
-172
164
2018E
-62
55
-173
165
2019E
-62
55
-173
166
Du Pont analysis
RoE
Net margin
Asset turnover
Gearing
unit
%
%
x
x
2013
25.8%
9.7%
1.0
2.6
2014
18.8%
8.8%
0.8
2.6
2015E
11.4%
5.2%
0.9
2.3
2016E
17.1%
6.7%
1.1
2.4
2017E
21.0%
7.6%
1.1
2.4
2018E
23.4%
7.7%
1.2
2.5
2019E
27.0%
8.1%
1.3
2.6
2013
31.7x
3.1x
3.1x
13.3x
2014
29.7x
2.6x
2.7x
13.7x
2015E
31.9x
1.5x
1.6x
8.3x
2016E
20.9x
1.4x
1.3x
6.8x
2017E
16.4x
1.3x
1.1x
5.8x
2018E
14.2x
1.2x
1.0x
5.0x
2019E
11.8x
1.1x
0.9x
4.3x
Valuation
P/E
P/B
P/S
EV/EBITDA
Source: Company data, Bloomberg, Renaissance Capital estimates
7
Renaissance Capital
19 March 2015
Beverages
Figure 15: Guinness: Income statement, NGNmn (unless otherwise indicated)
Income statement Jun-YE
2013
2014
Revenue
122,464
109,202
Change
5.2%
-10.8%
Cost of sales
(66,385)
(57,869)
Gross profit
56,078
51,333
Change
1.6%
-8.5%
Gross margin
45.8%
47.0%
Operating expenses
(35,464)
(35,210)
Operating profit
20,614
16,123
Change
-5.9%
-21.8%
Operating margin
16.8%
14.8%
Depreciation & amortisation
6,123
10,620
EBITDA
28,244
27,368
EBITDA margin
23.1%
25.1%
Interest (paid) received
-3605
-4442
Profit before tax
17009
11682
Tax rate
-30.2%
-18.0%
Taxation
(5,145)
Attributable profit
11,864
9,573
Change
-16.5%
-19.3%
Ave shares in issue (mn)
1,496
1,506
EPS (NGN)
7.9
6.4
Change
-17.7%
-19.8%
DPS (NGN)
7.0
3.2
Change
-11.4%
-54.3%
Pay-out ratio
88%
50%
2015E
114,553
4.9%
(66,441)
48,112
-6.3%
42.0%
(37,498)
10,615
-34.2%
9.3%
5,957
17,621
15.4%
-2348
8267
-28.0%
(2,315)
5,951
-37.8%
1,506
4.0
-37.8%
3.2
-1.2%
80%
2016E
135,157
18.0%
(76,364)
58,794
22.2%
43.5%
(44,472)
14,321
34.9%
10.6%
7,028
22,766
16.8%
-1427
12894
-29.4%
(3,796)
9,098
52.9%
1,506
6.0
52.9%
5.1
62.4%
85%
2017E
151,642
12.2%
(85,374)
66,268
12.7%
43.7%
(49,311)
16,956
18.4%
11.2%
7,885
26,519
17.5%
-1376
15580
-25.6%
(3,996)
11,585
27.3%
1,506
7.7
27.3%
6.5
27.3%
85%
2018E
173,285
14.3%
(97,213)
76,072
14.8%
43.9%
(55,683)
20,389
20.2%
11.8%
9,011
31,416
18.1%
-760
19628
-32.0%
(6,281)
13,347
15.2%
1,506
8.9
15.2%
7.5
15.2%
85%
2019E
197,096
13.7%
(110,177)
86,919
14.3%
44.1%
(62,576)
24,344
19.4%
12.4%
10,249
37,000
18.8%
-728
23616
-32.0%
(7,557)
16,059
20.3%
1,506
10.7
20.3%
9.1
20.3%
85%
Balance sheet
PPE
Other non-current assets
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other current assets
Total current assets
Total assets
Deferred tax
Finance lease obligation
Other non-current liabilities
Total non-current liabilities
Trade and other payables
Borrowings
Other current liabilities
Total current liabilities
Total equity
Total liabilities and equity
2015E
91,188
805
91,993
11,370
16,834
1,862
30,066
122,058
13,938
5,678
3,029
22,645
30,407
2,484
20,270
53,161
46,252
122,058
2016E
90,298
805
91,102
13,145
20,132
1,862
35,139
126,241
16,445
3,681
3,029
23,155
35,877
1,610
17,983
55,470
47,617
126,241
2017E
92,632
805
93,437
14,596
22,739
1,862
39,197
132,634
18,451
3,541
3,029
25,021
40,252
1,943
16,064
58,259
49,354
132,634
2018E
97,203
805
98,008
16,506
25,985
1,862
44,353
142,361
21,085
2,117
3,029
26,230
45,998
1,161
17,616
64,775
51,356
142,361
2019E
102,403
805
103,208
18,774
29,555
1,862
50,192
153,399
23,982
2,044
3,029
29,055
52,318
1,388
16,874
70,579
53,765
153,399
2013
88,113
709
88,822
12,400
16,649
3,189
32,239
121,061
11,956
8,796
2,995
23,746
32,507
3,000
15,768
51,275
46,039
121,061
2014
90,683
805
91,488
13,469
19,218
6,291
1,862
40,840
132,328
12,559
27,430
3,029
43,018
30,724
3,149
10,376
44,248
45,062
132,328
Source: Company data, Renaissance Capital estimates
Figure 16: Guinness: Cash flow statement, NGNmn
Jun-YE
NOPAT
Depreciation
Working capital
Capex
Operating FCF
Interest
Dividends
Debt
Other
FCF
Cash balance, bop
Cash balance, eop
2013
(558)
2014
13,214
5,569
(9,749)
(13,952)
(4,918)
(3,605)
(10,849)
21,797
(321)
2,102
(558)
1,544
2015E
5,957
4,167
(6,461)
3,663
(4,442)
(4,819)
(27,097)
11,772
(20,923)
1,544
(14,632)
2016E
9,738
7,028
396
(6,138)
11,025
(2,348)
(4,761)
(17,503)
4,215
(9,373)
(14,632)
(9,373)
2017E
11,530
7,885
317
(10,219)
9,513
(1,427)
(7,733)
(9,180)
3,487
(5,340)
(9,373)
(5,340)
Source: Company data, Renaissance Capital estimates
8
Disclosures appendix
Renaissance Capital
19 March 2015
Beverages
Analysts certification
This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the
issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to
the Issuer and such securities and markets, this document has been produced independently of the Issuer and all the views expressed in this document accurately reflect his or
her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have
interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. If the date of this report is not current, the
views and contents may not reflect the research analysts’ current thinking.
Each research analyst also certifies that no part of his or her compensation was, or will be, directly or indirectly related to the specific ratings, forecasts, estimates, opinions or
views in this research report. Research analysts’ compensation is determined based upon activities and services intended to benefit the investor clients of Renaissance
Securities (Cyprus) Limited and any of its affiliates (“Renaissance Capital”). Like all of Renaissance Capital’s employees, research analysts receive compensation that is
impacted by overall Renaissance Capital profitability, which includes revenues from other business units within Renaissance Capital.
Important issuer disclosures
Important issuer disclosures outline currently known conflicts of interest that may unknowingly bias or affect the objectivity of the analyst(s) with respect to an issuer that is the
subject matter of this report. Disclosure(s) apply to Renaissance Securities (Cyprus) Limited or any of its direct or indirect subsidiaries or affiliates (which are individually or
collectively referred to as “Renaissance Capital”) with respect to any issuer or the issuer’s securities.
A complete set of disclosure statements associated with the issuers discussed in this Report is available using the ‘Stock Finder’ or ‘Bond Finder’ for individual
issuers on the Renaissance Capital Research Portal at: http://research.rencap.com/eng/default.asp
Nigerian Breweries Plc
RIC: NB.LG
Renaissance Capital is either a market maker or on a continuous basis has sold to/bought from customers on a principal basis the securities or related securities of the issuer at
prices defined by Renaissance Capital.
Guinness Nigeria Plc
RIC: GUINNES.LG
Renaissance Capital is either a market maker or on a continuous basis has sold to/bought from customers on a principal basis the securities or related securities of the issuer at
prices defined by Renaissance Capital
Investment ratings
Investment ratings may be determined by the following standard ranges: Buy (expected total return of 15% or more); Hold (expected total return of 0-15%); and Sell (expected
negative total return). Standard ranges do not always apply to emerging markets securities and ratings may be assigned on the basis of the research analyst’s knowledge of the
securities.
Investment ratings are a function of the research analyst’s expectation of total return on equity (forecast price appreciation and dividend yield within the next 12 months, unless
stated otherwise in the report). Investment ratings are determined at the time of initiation of coverage of an issuer of equity securities or a change in target price of any of the
issuer’s equity securities. At other times, the expected total returns may fall outside of the range used at the time of setting a rating because of price movement and/or volatility.
Such interim deviations will be permitted but will be subject to review by Renaissance Capital’s Research Management.
Where the relevant issuer has a significant material event with further information pending or to be announced, it may be necessary to temporarily place the investment rating
Under Review. This does not revise the previously published rating, but indicates that the analyst is actively reviewing the investment rating or waiting for sufficient information
to re-evaluate the analyst’s expectation of total return on equity.
Where coverage of the relevant issuer is due to be maintained by a new analyst, on a temporary basis the relevant issuer will be rated as Coverage in Transition. Previously
published investment ratings should not be relied upon as they may not reflect the new analysts’ current expectations of total return. While rated as Coverage in Transition,
Renaissance Capital may not always be able to keep you informed of events or provide background information relating to the issuer.
If issuing of research is restricted due to legal, regulatory or contractual obligations publishing investment ratings will be Restricted. Previously published investment ratings
should not be relied upon as they may no longer reflect the analysts’ current expectations of total return. While restricted, the analyst may not always be able to keep you
informed of events or provide background information relating to the issuer.
Where Renaissance Capital has neither reviewed nor revised its investment ratings on the relevant issuer for a period of 180 calendar days, coverage shall be discontinued.
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Where Renaissance Capital has not expressed a commitment to provide continuous coverage and/or an expectation of total return, to keep you informed, analysts may prepare
reports covering significant events or background information without an investment rating (Not Covered).
Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the security’s expected performance
and risk.
Renaissance Capital reserves the right to update or amend its investment ratings in any way and at any time it determines.
9
Renaissance Capital
19 March 2015
Beverages
Renaissance Capital equity research distribution of ratings
Investment Rating Distribution
Renaissance Capital Research
Investment Banking Relationships*
Renaissance Capital Research
Buy
Hold
Sell
Under Review
Restricted
Cov. in Trans.
123
38%
Buy
2
121
38%
Hold
1
74
23%
Sell
0
3
1%
Under Review
0
0
0%
Restricted
0
1
0%
Cov. in Trans.
0
322
3
*Companies from which RenCap has received compensation within the past 12 months.
NR – Not Rated
UR – Under Review
67%
33%
0%
0%
0%
0%
Guinness Nigeria share price, target price and rating history
Jan-15
Last Price
Feb-15
Nov-14
Dec-14
Sep-14
Oct-14
Target Price
Aug-14
Jun-14
Jul-14
Apr-14
May-14
Jan-14
Restricted
Feb-14
Mar-14
Nov-13
Dec-13
Under Review
Sep-13
Oct-13
Aug-13
Jun-13
Jul-13
Cov. in Trans.
Apr-13
May-13
Jan-13
Feb-13
Mar-13
Not covered
Nov-12
Dec-12
Sep-12
Oct-12
Sell
Aug-12
Jun-12
Jul-12
Hold
Apr-12
May-12
Jan-12
350
300
250
200
150
100
50
0
Feb-12
Mar-12
Buy
100%
80%
60%
40%
20%
0%
Source: Bloomberg
Nigerian Breweries Plc share price, target price and rating history
Jan-15
Last Price
Feb-15
Nov-14
Dec-14
Sep-14
Oct-14
Target Price
Aug-14
Jun-14
Jul-14
Apr-14
May-14
Jan-14
Restricted
Feb-14
Mar-14
Nov-13
Dec-13
Under Review
Sep-13
Oct-13
Aug-13
Jun-13
Jul-13
Cov. in Trans.
Apr-13
May-13
Jan-13
Feb-13
Mar-13
Not covered
Nov-12
Dec-12
Sep-12
Oct-12
Sell
Aug-12
Jun-12
Jul-12
Hold
Apr-12
May-12
Jan-12
Feb-12
Mar-12
Buy
250
200
150
100
50
0
100%
80%
60%
40%
20%
0%
Source: Bloomberg
10
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