NB Plc. Outlook Upgraded to Positive with Topnotch Rating
GCR Ratings has affirmed the national scale long term and short term Issuer ratings of AA+(NG) and A1+(NG) respectively, assigned to Nigerian Breweries Plc, with the outlook revised to positive.
In a rating note, GCR explained that the ratings accorded to Nigerian Breweries Plc reflect the company’s leading market position in the brewery industry, on the back of substantial production capacity facilitating sustained high market share.
The rating note stated that NB Plc. remains the dominant brewer in Nigeria, with about 60% market share, underpinned by its large production capacity of over 17 million hectolitres (mhl), compared to a combined 14.5mhl by its two key competitors.
The firm hints that NB continued to mitigate challenging global supply chain dynamics and international commodity price movements through greater import substitution, partnering with local suppliers to grow sorghum and reduce reliance on malt barley.
Entrenching these partnerships will further complement the existing extensive distribution network, robust customer base and well diversified product base, according to GCR.
In addition, GCR analysts said the optimal expansion of the existing production capacity is underway, which will increase the installed capacity to 19mhl and capture further market share.
GCR takes cognisance of significant revenue growth in FY21, peaking at N437.3 billion over the review period, according to the rating note. It said the growth was underpinned by stronger volumes in premium brands and inflation induced price increases.
This notwithstanding, NB Plc. earnings before interest tax depreciation and amortisation (EBITDA) margin moderated by 2 percentage points to 18% in FY21, due to rising input costs and exacerbated by lingering forex challenges, albeit remaining in line with peer average.
GCR anticipates 15% revenue growth in FY22 and 20% in FY23, supported by higher volumes from the optimal capacity expansion of the brewing plants and continued price increases.
“Over the outlook period, we expect that imported input cost inflation and the impact of the expected rise in excise duty on the products will be mostly offset by price adjustments, with the EBITDA margin largely preserved at around the historical range of 18%-21%.”
It weighs NB’s ability to raise prices, despite a generally contained consumer environment, and highlights the competitive advantage it maintains by dominating the less price sensitive premium segment.
The rating note stated that the leverage and capital structure are strong rating factors, given the conservative debt profile and credit protection metrics. Having repaid its commercial papers and high lease liabilities during FY21, gross debt normalised to N31.4 billion, from N91.4 billion in FY20.
However, debt is offset by cash holdings of N17 billion. Combined with strong earnings, net debt to EBITDA significantly improved to 0.2x in FY21 from 0.9x in FY20. Similarly, operating cash flow coverage of debt strengthened to 276% compared to 84% in FY20 and net interest coverage slightly improved to 7.4x from 6x in FY20, supported by the lower debt level in FY21.
According to the rating note, GCR expects that the leverage metrics will remain strong in the near term, should NB plan to raise further debt. READ: Stanbic IBTC Asset Management Gets Topnotch Ratings Upgrade
“The sources versus uses liquidity coverage is estimated at 1.9x for the 12 months period to December 2022. This is underpinned by the GCR’s projection for robust net operating cash flows in FY22, and cash holding of N17 billion in December 2021.
“This will be further supported by substantial unutilised committed and uncommitted facilities, which will be utilised to sufficiently meet debt repayment of N24.5 billion, capital expenditure (CAPEX) commitments and dividend payments”, it added.
The positive outlook reflects GCR’s expectation that NB Plc. will meet its growth target through capacity expansion and volume growth while maintaining a conservative debt level that is supportive of a very strong credit profile. #NB Plc. Outlook Upgraded to Positive with Topnotch Rating
