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Saturday, October 1, 2022

Investors See Growth Potential in International Breweries

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Investors are seeing growth potentials in International breweries even as the company’s revenue continues to rise while huge costs of production plunged it into a loss position.

Of course, the optimism is strengthened by a propitious outlook for the brewery industry as the reopening of the economy buoyed consumer demands. And “BUY” on stocks by investment houses buoyed market participants’ confidence in future earnings growth.

On October 10, 2021, International Breweries market capitalization (the sum of the price of all its outstanding shares) was N123.56 billion. Its trailing 12-month revenue was N81.96 billion. Divide N123.56 billion by N81.96 billion and you get about 1.51, which was the company’s price to sales (P/S) ratio at the time.

A 1.51 P/S indicates investors are willing to pay more per Naira of sales for the company’s stock.

The Price to Sales ratio, also known as the P/S ratio, is a formula used to measure the total value that investors place on the company in comparison to the total revenue generated by the business.

Interestingly, international Breweries’ sales spiked by 35.21 percent to N81.96 billion in June 2021 from N60.61 billion the previous year.

It is efficient at using its labour and supplies in producing goods and services as gross profit spiked by 61.64 percent to N15.41 billion as at June 2021.

Gross profit margin increased to 18.81 percent in the period under review from 15.73 percent the previous year.

As a result of the spiraling cost of production, the brewer posted a loss after tax of N13.88 billion in the period under review from N9.35 billion loss the previous year.

The company and sector players are reeling from inflationary pressures, high energy costs, foreign exchange scarcity, excise duty on alcoholic drinks and beverages and volatile raw material price, as they are spending more to produce each unit product.

From 2019 to 2020, manufacturers spent about N143.29 billion on alternative power supply, says the Manufacturers Association of Nigeria (MAN).

There are indications that container scarcity triggered by the coronavirus pandemic could exacerbate the already anemic situations of firms as cost of production is expected to go up.

International Breweries incurred N98.12 billion in total costs (cost of sales plus administrative/distribution expenses), which is 38.73 percent higher than 2020’s N70.73 billion.

Interestingly, the brewer’s total costs are 1.19 times sales, which is why it has been unprofitable.

The good news is that the company and sector players have been able to pass on rising input costs to consumers in the form of higher prices. They have hiked the price of key products.

There has been a reduction in finance costs and debt in the balance sheet, thanks to the issuance of rights as the company utilised its rights issue proceeds to offset N164.53 billion in the first quarter of 2020.

The firm has entered into non-deliverable forward contracts to mitigate the forex risk on the contractual interest and principal repayments.

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