NB Plc.’s Revenue to Rise 15% as Share Rally ahead of Analysts Price Target

NB Plc.’s Revenue to Rise 15% as Share Rally ahead of Analysts Price Target

Nigerian Breweries Plc.’s revenue has been projected to rise 15% above 2020 performance as the company’s share beats analysts target prices.

Driven by positive momentum in the stock market, NB share price printed at ₦60, an amount significantly higher than analysts price targets.

At 46.8% floating level, the company’s market capitalisation settled at ₦479.814 billion on Friday over sustained buying interest.

Share prices of listed companies have been enjoying meteoric rise since last year due to lower yield on government instruments.

In its outlook for 2021, Vetiva Capital forecasted that NB Plc.’s total revenue will print at ₦379.7 billion.

This represent an uptick when consider against estimated ₦330.1 billion for financial year 2020.

Analysts’ projection comes amidst reported increase in COVID-19 infection in Nigeria, the brewer’s largest market.

However, this is not unlikely given the market dominance of the brand, but the downside risk put caveat on the positive outlook.

MarketForces Africa gathered that earnings outlook in the industry depends largely on availability of COVID-19 vaccine and effective distribution.

NB Plc., after dealing with largely dented demand in the first half of 2020 made a sharp rebound in the third quarter.

Analysts believe that the company is on its way to report stable year on year revenue performance.

However, advising its customers, Vetiva maintained neutral position as analysts placed a price target of ₦59.07 on the stock at reference date.

Read Also: PMI: Economic Recoveries in Nigeria, Others Could Disappoint in Q3

Meanwhile, at the close of trading session on the Nigerian Stock Exchange on Friday, NB share price printed at ₦60, from ₦58 at the beginning of the week.

Demand for the company’s product surged in the third quarter of 2020 as Federal Government lifted rules on lockdown.

According to Vetiva, the 26% revenue recovery recorded by NB in the period was driven by heighten volume growth across beer segment.

The breakdown showed that the sales rebound was driven by 0.5% growth across NB Plc premium portfolio – Heineken and Tiger- and about 20% growth in non-alcoholic segment.

Vetiva expects revenue for 2020 to stay on course at ₦330.1 billion on the he back of numerous moves by the company.

This include aggressive marketing and introduction of new packages to support struggling brands, and expected increase in price.

Generally, the industry was significantly impacted due to economic lockdown and health demand requiring social distance to curb spread of COVID-19.

According to United Capital, heading into 2020, beer producers were expected to deliver strong performances.

It was noted that there were price adjustments by NB and Guinness in November 2019.

Analysts explained that this happened in a bid to pass on some of the pressures from the new ad-valorem excise regime.

However, the occurrence of the Covid-19 pandemic disrupted the promise expected from the sector as revenue across all United Capital coverage companies dipped.

NB Plc performance was affected by the lockdown which limited activities of on-trade channels (bars & clubs) as well as social gatherings.

Nevertheless, analysts noted that revenue performance was fairly resilient declining marginally by 0.7% year on year to ₦234.0 billion in 9-months of 2020.

Comparably, Guinness recorded 27.1% year on year decline to ₦90.6 billion and International Breweries plunged 1.5% to ₦95.8 billion in the same period.

The company’s earnings line came weak due to multiple pressure around top line variables.

The brewer’s pre-tax profit declined by 36.3% year on year  to ₦11.0 billion in 9M-2020 from ₦17.2 billion in 9M-2019.

Similarly, net income plunged 43.5% year on year to ₦6.9 billion in 9M-2020 from ₦12.3 billion in 9M-2019.

In its equity note, United Capital stated that the steep decline in profitability relative to revenue was largely due to huge operating leverage (high depreciation expense) as well as huge finance costs.

“Going forward, we expect the financial year 2020 numbers to come in weak particularly as major markets like Lagos re-introduced restrictions during the festive period.

“In 2021, we expect volumes to recover which would complement recent price increases to support decent Revenue recovery”, United Capital stated.

In addition, with excise payments now flat on a year on year basis, analysts said margins should receive some succor and thus support healthy profit recovery.

Nevertheless, the recent rally in the local bourse has seen market price moving beyond our model estimates.

Largely bearish analysts at United Capital downgraded NB stock, placed a SELL rating on the ticker.

United Capital had set target price on NB stock at ₦45.31, as compare with ₦56 per share at reference date.

NB Plc.’s Revenue to Rise 15% as Share Rally ahead of Analysts Price Target