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Nigerian Breweries Plc has delivered impressive returns to investors even amid myriad systemic challenges and punitive regulations, thanks to restoration of social activities combined with price increases on strategic brands post-2020 lockdown.
First quarter results released by the brewer that controls 23.10 percent of the beer market shows it recorded double digit growth in sales, profit, and margins as it also benefited from the spill-over effect of the N2.80 trillion stimulus package of 2020/21.
For the first three months through March 2022, Nigerian Breweries’ revenue surged by 23.30 percent to N137.77 billion, and that compares to the N69.21 billion figure of 2015.
Net income surged by 77.91 percent to N13.61 billion in March 2022 from N7.65 billion the previous year.
The management of Nigerian Breweries is generating enough profit from sales while contemporaneously containing cost as net margins increased to 9.88 percent in March 2022 from 7.25 percent in the previous year.
It has a higher gross margin, which means more capital the company retains, which it can then use to pay other costs or satisfy debt obligations.
In short, gross margin increased to 45.33 percent in March 2022 from 37.54 percent as at March 2021.
The largest brewer in Africa’s most populous nation is efficient in its operations and is good at turning sales into profits.
Operating profit margin increased to 17.22 percent in the period under review from 13.71 percent the previous year.
However, profit margins are still lower than pre-pandemic level as the lockdown imposed by the government to curb the spread of the virus hindered consumers from hitting the bar to have a drink.
The introduction of the sugar tax and deteriorating foreign exchange conditions are expected to balloon the cost of production of Nigerian Breweries and peer rivals.
The largest brewers are reeling from poor power supply, multiple taxation, and logistics constraints as well as demand side constraints such as sluggish economic growth, high inflation rates that undermine consumption patterns.
Despite the cost pressures and some downside risks, analysts at Afrinvest are sanguine that the gains from economies of scale would propel Nigerian Breweries profitability to a pre-pandemic level of N16.50 billion.
The investment house recommends a “Buy” for Nigerian Breweries share price with an upside of 43.70 percent from the closing share price of N40.45 on 31st March 2022.
It is important to note that Nigerian Breweries, through its parent company, Heineken Brouwerijen B.V; through its private subsidiary, Raysun Nigeria Limited, secured the takeover of Champion Breweries.
“We expect a complete business buyout of the company in the coming months, and the possibility of a business merger with Nigerian Breweries in the future,” said analysts at Afrinvest Securities.