NB Plc: Analysts Raise Estimates over Improved Fundamentals

NB Plc: Analysts Raise Estimates over Improved Fundamentals

Nigerian Breweries Plc estimates have been upgraded by Chapel Hill Denham’s analyst Abiola Gbemisola as a result of sustained volume recovery experience in third quarter (Q3) 2020.

The upgrade signposts improved fundamentals as explained by the equity research note. This is however considered as positive for equities investors.

NB Plc.’s share price has maintained uptrend in the last 7-trading session at the local bourse.

The stock printed at ₦60.50 per share from ₦54 low in the period. Analysts have however projected to see the brewer’s stock in a stable upswing.

According to analyst note, Nigerian Breweries 2020 revenue is now expected at ₦315.23 billion as against ₦304.30 billion earlier estimated.

Chapel Hill Denham retained BUY rating on NB Plc.’s share with 12-month target price raised to ₦76.81 from previously ₦52.27.

It was stated that the new revenue expectation is due to NB’s resilient results in 9M-2020  particularly in Q3-2020, where it delivered a 25.5% year on year and 19.8% quarter on quarter growth in revenue.

“We believe this was driven by robust growth in beer volumes, following the re-opening of on-trade consumption channels in Q3-2020, alongside an increase in the average price of NB’s portfolio”, Chapel Hill Denham’s analyst Gbemisola stated.

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Explaining further, Chapel Hill Denham expects NB to maintain its fast recovery in Q4-2020 and in financial year 2021.

The firm then projects 2021 revenue at ₦347.25 billion.

“Our estimates for 2021 implies a conservative 2.0% increase in the average price of NB’s portfolio and an 8.0% increase in beer volume.” analyst stated.

Meanwhile, NB Plc earnings before interest tax depreciation and amortisation (EBITDA) in 2020 has been raised to ₦65.72 billion from ₦56.46 billion that was previously estimated.

But, analyst Gbemisola hinted that higher finance costs is expected to pressure profitability, thus profit after tax has been forecast to ₦9.20 billion from prior estimate of ₦10.35 billion.

Chapel Hill Denham’s analyst Gbemisola increased the projected cost of sales for NB in 2020 to ₦192.12 billion from ₦188.67 billion previously and ₦191.76 billion in 2019.

This was due to the impact of Naira devaluation and of course FX scarcity.

On operating expenses, the firm marginally increased forecast to ₦90.27 billion from ₦89.65 billion previously expected, in line with the 9M-2020 run-rate of ₦90.49 billion.

However, for 2021 Chapel Hill Denham’s analyst is projecting cost of sales and operating expenses at ₦208.99 billion – which is +8.7% year on year increase and 94.03 billion that translates to +4.2% uptick respectively.

“We have also lowered 2020 profit after tax forecast to ₦9.20 billion from ₦10.35 billion previously expected, due to the increase in our finance cost estimate to ₦14.67 billion.

Notably, NB’s total debt has increased by 139.7% year to date to ₦133.54 billion as of 9M-2020, exclusive of the latest ₦20 billion Commercial Paper issuance in October 2020.

In financial year 2021, Chapel Hill Denham expects profit after tax at ₦19.19 billion.

On liquidity side, the NB Plc free cash flow to equity is expected at ₦40.19 billion in 2020 from ₦1.45 billion previously estimated and ₦57.78 billion in 2021.

“We expect the higher free distributable cash flow in 2020 to be driven by the recovery in earnings and net debt proceeds following total commercial paper issuance by estimated at ₦112.12 billion in 2020.

“We estimate net operating cash flow to come at ₦36.91 billion, a 5.0% drop, in 2020 and ₦75.09 billion in 2021 on account of positive working capital”, Analyst Gbemisola stated.

On the brewer’s capital expenditure, Chapel Hill Denham increased NB’s capital expenditure intensity for 2020 to 8.0% from 7.0% previously estimated and at 7.0% in 2021.

This indicates a net capital expenditure forecast of ₦25.22 billion in 2020 and ₦24.31 billion in 2021.

Upgraded price target implies a potential total return of 29.0% comprises 27.0% capital gain and 2.1% dividend yield.

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NB Plc: Analysts Raise Estimates over Improved Fundamentals