Nigerian Breweries Foray into Wine and Spirits to Underpin Profit Margins

The strategic plan by Nigerian Breweries (NB) Plc to take over Distell Wines and Spirit Nigeria Limited will underpin the profit margin of the brewer and consolidate its share of the market, according to research house Chapel Hill Denham Limited.

“Our belief is premised on the fact that Guinness, which plays in the spirit market, currently benefits from the stronger profit margin for spirit relative to beer,” said analysts at Chapel Hill Denham.

“We will also not be surprised if NB strengthens its competitiveness in the new markets over the long term to become the number one player, just as it currently is in the beer market,” said the analysts.

NB announced on 31 May 2023 that it received an offer from Heineken Beverages to acquire the majority interest in Distell Wines and Spirit Nigeria Limited. The offer involves the acquisition of the 80 percent of Distell International Limited in Distell Wines and Spirit Nigeria Limited.

Analysts at Chapel Hill Denham Limited in a note to clients said the acquisition of Distell will pave the way for NB to compete with peer rival Guinness Nigeria that controls the spirit market.

The sector is lucrative as the spirit segment contributed 18 percent to Guinness’ total revenue in December 2022 as the company was one of the best performers on the stock market last year.

Because Distell sources most of its material locally, it is less susceptible to foreign currency volatility. And NB will also shed from currency shocks as it gets foreign exchange from parent companies.

Just like Nigerian companies, NB capitulated to macroeconomic headwinds as currency swap policy of the central bank that impacted many cash based businesses tipped the brewer into its first loss in more than a decade.

Distell Nigeria’s product distribution is improving as the company added seven in-market distribution centers in 2022, lifting its mile distribution to over 15,000 outlets, according to Chapel Hill Denham, based on disclosure by Distell International.

The research house retained their Buy ratings and 12 months target price OF N60 on NB, which implies a potential returns of 46.70 percent, inclusive of dividend yield of 4.10 percent.