Economy

Competition to Further Weaken Nigerian Breweries Earnings

Published

6 years ago

08/03/2019

By Dipo Olowookere

Investors have been advised to offload Nigerian Breweries shares in their holdings because things look gloomy for the brewery giant.

Recently, the company released its financial statements for the year ended December 31, 2018 and from the numbers, analysts at Cordros Research said they “expect net earnings to decline further in 2019E on intense competition from International Breweries and Guinness Nigeria, a further increase in excise duty, and still-weak consumer demand environment.”

In their report, they said Nigerian Breweries will suffer a 3.6 percent decline in net revenue, flattish gross margin and 15.2 percent EBITDA and 26.9 percent net profit declines.

It further said volume growth will remain weak in 2019 given cautious macro outlook, amidst a still pressured consumer wallet and a more intense competitive environment.

“Although a bright spot for volume exists in the premium segment leveraging Heineken, we expect the depression in the economy (the new mainstream) segment will continue for the next 2-3 years.

“On the whole, we revise our 2019E net revenue forecast lower by 1.2 percent to N312.84 billion (-3.6 percent y/y),” Cordros Research said.

Commenting on the gross margin estimate for 2019E, Cordros revised this 72 bps lower to 38.6 percent, and estimates over 2020-2021E to average 39 percent.

It pointed out that margin impairment is expected to continue until 2021FY, with Nigerian Breweries facing costs, excise, and selling price pressures.

It was predicted that excise duty should grow by N0.35/cl by H1-19, further impacting net revenues of the company.

“Although management has stated it is prepared to take price increases throughout the year, we think this will be greatly dependent on competition (NB hastily hiked, then reversed, prices on Star Radler, Life, Gulder, and Goldberg in H1-18 following the increase in excise, however, competitors retained prices),” the report said.

The report further stated that it is slashing the 2019E EBITDA forecast by 14.6 percent on the back of rise in the OPEX, which will reflect increased marketing expenditure in pursuit of the shift from a sell-in to more of a sell-out strategy to address dwindling volumes.

“We forecast only a marginal decline in NB’s net finance costs (vs. 28.2 percent decrease in 2018FY), with borrowings (N41.13 billion in 2018FY) expected to moderate in line with a decline receivables,” the report stated.

On the valuation, Cordros Research said the net impact of the changes to its model is a cut to 2019E EPS estimate to N1.78 (from N2.63 previously) and a target price of N57.98 (previously N68.96), with SELL rating.

On a year-to-date basis, shares of Nigerian Breweries have dropped 6 percent.

“On our estimates, NB currently trades on 2019E P/E and EV/EBITDA multiples of 45.1x and 11.0x respectively, relative to MEA peer averages of 22.24x and 11.7x respectively,” it said.

Economy

Aradel Holdings Acquires Equity Stake in Chappal Energies

Published

4 hours ago

11/12/2024

Aduragbemi Omiyale

By Aduragbemi Omiyale

A minority equity stake in Chappal Energies Mauritius Limited has been acquired by a Nigerian energy firm, Aradel Holdings Plc.

This deal came a few days after Chappal Energies purchased a 53.85 per cent equity stake in Equinor Nigeria Energy Company Limited (ENEC).

Chappal Energies went into the deal with Equinor to take part in the oil and gas lease OML 128, including the unitised 20.21 per cent stake in the Agbami oil field, operated by Chevron.

Since production started in 2008, the Agbami field has produced more than one billion barrels of oil, creating value for Nigerian society and various stakeholders.

As part of the deal, Chappal will assume the operatorship of OML 129, which includes several significant prospects and undeveloped discoveries (Nnwa, Bilah and Sehki).

The Nnwa discovery is part of the giant Nnwa-Doro field, a major gas resource with significant potential to deliver value for Nigeria.

In a separate transaction, on July 17, 2024, Chappal and Total Energies sealed an SPA for the acquisition by Chappal of 10 per cent of the SPDC JV.

The relevant parties to this transaction are working towards closing out this transaction and Ministerial Approval and NNPC consent to accede to the Joint Operating Agreement have been obtained.

“This acquisition is in line with diversifying our asset base, deepening our gas competencies and gaining access to offshore basins using low-risk approaches.

“We recognise the strategic role of gas in Nigeria’s energy future and are happy to expand our equity holding in this critical resource.

“We are committed to the cause of developing the significant value inherent in the assets, which will be extremely beneficial to the country.

“Aradel hopes to bring its proven execution competencies to bear in supporting Chappal’s development of these opportunities,” the chief executive of Aradel Holdings, Mr Adegbite Falade, stated.

Economy

Afriland Properties Lifts NASD OTC Securities Exchange by 0.04%

Published

8 hours ago

11/12/2024

Adedapo Adesanya

By Adedapo Adesanya

Afriland Properties Plc helped the NASD Over-the-Counter (OTC) Securities Exchange record a 0.04 per cent gain on Tuesday, December 10 as the share price of the property investment rose by 34 Kobo to N16.94 per unit from the preceding day’s N16.60 per unit.

As a result of this, the market capitalisation of the bourse went up by N380 million to remain relatively unchanged at N1.056 trillion like the previous trading day.

But the NASD Unlisted Security Index (NSI) closed higher at 3,014.36 points after it recorded an addition of 1.09 points to Monday’s closing value of 3,013.27 points.

The NASD OTC securities exchange recorded a price loser and it was Geo-Fluids Plc, which went down by 2 Kobo to close at N3.93 per share, in contrast to the preceding day’s N3.95 per share.

During the trading session, the volume of securities bought and sold by investors increased by 95.8 per cent to 2.4 million units from the 1.2 million securities traded in the preceding session.

However, the value of shares traded yesterday slumped by 3.7 per cent to N4.9 million from the N5.07 million recorded a day earlier, as the number of deals surged by 27.3 per cent to 14 deals from 11 deals.

Geo-Fluids Plc remained the most active stock by volume (year-to-date) with 1.7 billion units sold for N3.9 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.5 million units worth N5.3 million.

Also, Aradel Holdings Plc remained the most active stock by value (year-to-date) with 108.7 million units worth N89.2 billion, followed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.5 million units sold for N5.3 billion.

Economy

Naira Trades N1,542/$1 as FX Speculators Dump Dollars in Panic

Published

8 hours ago

11/12/2024

Adedapo Adesanya

By Adedapo Adesanya

The Naira continued to appreciate on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM), gaining 0.7 per cent or N10.23 on Tuesday, December 10 to trade at N1,542.27/$1 compared with the preceding day’s N1,552.50/$1.

The Central Bank of Nigeria (CBN)-backed Electronic Foreign Exchange Matching System (EFEMS) platform introduced to tackle speculation and improve transparency in Nigeria’s FX market has been attributed as the source of the Naira’s appreciation.

Speculators holding foreign currencies, particularly the US Dollar, have seen the value of their money drastically drop due to the appreciation of the local currency. This is forcing them to dump greenback into the system and take the domestic currency alternative- a move that has seen available FX increase.

Equally, the domestic currency improved its value against the Pound Sterling in the official market during the trading day by N6.81 to sell for N1,955.12/£1 compared with Monday’s closing price of N1,961.93/£1 and against the Euro, it gained N10.84 to close at N1,613.00/€1, in contrast to the previous day’s rate of N1,623.84/€1.

Data from the FMDQ Securities Exchange showed that the value of forex transactions significantly increased yesterday by $228.85 million or 257.2 per cent to $401.17 million from the preceding session’s $112.32 million.

However, in the parallel market, the Nigerian currency weakened against the US Dollar on Tuesday by N5 to settle at N1,625/$1 compared with the previous day’s value of N1,620/$1.

In the cryptocurrency market, Dogecoin (DOGE) lost 4.8 per cent to sell at $0.39116, Litecoin (LTC) depreciated by 3.3 per cent to trade at $110.25, Binance Coin (BNB) went south by 2.3 per cent to $681.44, Ethereum (ETH) dropped 1.6 per cent to finish at $3,671.08, and Cardano (ADA) slid by 0.5 per cent to $0.8837

Conversely, Ripple (XRP) jumped by 5.4 per cent to $2.23 amid a continued shift for the coin with its parent company seeing the benefits of a crypto-friendly regulatory environment for US-based companies.

XRP is closely related to Ripple Labs, a high-profile payments company targeted by the SEC in 2020 on allegations of selling the token as a security to U.S. investors. Ripple fully cleared a long-drawn court case in 2024.

Further, Solana (SOL) expanded by 0.8 per cent to $219.75, Bitcoin (BTC) grew by 0.4 per cent to $97,446.95, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.