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This is not the time to wager on the Brewery sector as evidenced by poor performances and the negative impact of government fiscal policies on future earnings and dividend distribution.
To put in proper context, Nigeria Breweries, Guinness Nigeria, and International Breweries are walking on rotten ice and investors should underweight their stocks.
Nigeria Breweries has shed or lost 7.56 percent so far this year, underperforming the NGX index gains of 2.68 percent. The company’s shares which closed trading at N37.9, had traded as high as N93.36 as of October 23, 20218.
Guinness Nigeria has a year to date (YTD) return of 1.01 percent, while International Breweries has gained 6.38 percent.
These brewers generated a combined negative cash flow of N73.73 billion as at March 2023 from a similar loss position of N41.10 billion the previous year.
Of course, Nigerian Breweries posted a net loss of N10.71 billion, the first loss in more than a decade, according to data compiled by MoneyCentral.
International Breweries that has been reeling from spiraling debt does have enough earnings to pay interest payment as it has been recording recurring profit after tax (PAT).
Brewers and tobacco makers are under threat brought on by the 2023 Fiscal Policy Measures (FMP) that was released by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, via a circular on April 20, 2023. It will take effect from June 1, 2023.
The FMP contained increases on excise duties for beer and other alcoholic beverages as well as tobacco and single use plastics.
It increased the excise on beer from N25 to N75 per liter in spite of the agreed excise on these products that was negotiated between the government and manufacturers in 2022 that was approved by no less an official than President Muhammadu Buhari to run till 2024.
Analysts have warned that the fiscal measures could make some firms who are finding it difficult to survive the tough operating environment to lay off workers.