Analysts Upgrade Nigerian Breweries to Buy, Raise Target Price

Equities analysts have raised their expectations for Nigeria Breweries Plc stock with an upward adjustment to the brewer’s 12-month price target. Analysts told investors in an equities report that the brewer’s performance in the financial year 2023 was negatively impacts by market dynamics.

The company came under pressure from weak consumer spending, rising inflation, and naira devaluation, leading to pressure on margins and profitability. Nigerian Breweries posted more than N106 billion in 2023 as a result of headwinds in the Nigerian market. The devaluation of the naira damaged the company’s performance, as it booked large FX losses.

Nigerian breweries has revealed a plan to hike prices of their products again. The beer producer has been adjusting prices to compensate for higher production costs spooked by rising inflation rate and weak local currency. Looking forward, analysts at Cordros Capital said they expect higher prices and moderate volume growth to support revenue growth amid constrained consumer spending.

“Additionally, we note that cost pressures, persistent FX illiquidity issues and elevated finance costs remain significant challenges to profitability”. Analysts said in their equities report that they anticipate gradual revenue recovery in 2024, driven by price increases and moderate volume growth.

On volumes, Cordros Capital Limited cite the company’s expansion efforts in the Western and Northern regions, alongside an intensified presence in the Eastern part of the country. Analysts said this, coupled with a focus on premium brands, is expected to yield a 13.3% year-on-year revenue growth for 2024 and a cumulative average growth rate (CAGR) of 9.3% over 2025-2028.

“We anticipate a slight 20 basis points year-on-year decline in gross margin to 35.1% in 2024 versus 35.5% in 2023 due to increased cost pressures from the high inflationary environment and currency devaluation.

Despite an anticipated 7.8% year-on-year increase in operating expenses, Cordros Capital analysts forecast a 241 basis points year-on-year increase in earnings before interest tax depreciation and amortisation (EBITDA) margin to 17.7% in 2024 from 15.3%. The projection is primarily attributed to the robust revenue growth of 13.3%.

Analysts stated that the prevailing FX challenges in the country are expected to continue exerting pressure on NB’s bottom line.  Specifically, analysts at the firm expect a 33.5% increase in FX loss to N204.77 billion, due to the company’s foreign currency exposure and substantial debt burden.

Nigerian breweries’ net finance costs is estimated to remain elevated at N251.80 billion, up by 33.1% year on year in 2024, primarily driven by higher FX losses and increased finance costs.  Consequently, analysts forecast a net loss per share of N15.63 in 2024 vs a loss per share of N12.80 in 2023.

While acknowledging NB’s strong market position, Cordros Capital analysts said they note that this strength is somewhat offset by increasing pressure from higher working capital absorption and debt levels.

“In our assessment, the brewer’s liquidity position is considered weak due to its substantial short-term obligations.”. Given no major projected capital expenditure in 2024, the investment firm forecasted the company’s cash balance will settle at N50.43 billion versus N39.57 billion in 2023, which is insufficient to cover the estimated maturing short-term liabilities of N648.14 billion, an increase from N584.47 billion in 2023.

Cordros Capital analysts has now set Nigerian Breweries Dec-24 target price at N41.05  In the medium term, analysts said they expect the integration of Distell’s operations to open up new growth opportunities for Nigerian breweries. Given NB’s recent profit challenges, this integration could enhance revenue and cost synergies while gaining exposure to the rapidly expanding spirits market. # Banks Face Risks over 24hrs FX Positions Sell Down

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