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The expansion of the Ama Brewery plant in Enugu State by Nigerian Breweries Plc is expected to boost the brewing capacity from 2.7mn litres to 4.8mn litres and up to 6mn litres in the second phase.
This is set to boost production capacity as the company utilises its sales to magnify revenue, according to a latest report by Chapel Hill Denham Limited.
“This is expected to drive the volume growth of the premium segment, most especially Heineken. Against this backdrop, we forecast a revenue growth of 38.9% yoy increase to N607bn in FY-22E,” analysts at Chapel Hill Denham, said.
Nigerian Breweries has used property plant and equipment to bolster sales, as the company relied on price hike on key products to fend off rising inflation and spiraling costs stoked by foreign exchange scarcity.
The company’s fixed asset turnover rose to 0.51 percent in March 2022 from 0.45, according to calculations by MoneyCentral.
Basically, fixed asset turnover ratio for the year is 0.51, which means that for every one Naira invested in fixed assets, a return N0.50 is earned.
Despite rising cost of production, earnings before interest taxation and amortisation increased by 41.91 percent to N29.06 billion as at March 2022.
Interestingly, the brewer is making profit from core operations as EBITDA margin increased to 24.10 percent in the period under review from 22.11 percent the previous year.
The brewer will maintain the growth momentum even amid deteriorating consumer demand and red-hot inflation as continuous improvement in product mix and additional price increases across key brands is expected to protect margins going forward.
Nigerian Breweries stock has rallied 54 percent so far this year, and it is trading at a full year (FY) 22E EV/EBITDA of 7.0x which is lower than EM peers (10.7x), according to data from Chapel Hill.
In an optimistic tone, the research house has maintained its Buy ratings on the brewers’ stocks as they have revised their target price (TP) higher to N106.31 from N77.61, implying a total upside of 44.1 percent (including a dividend yield of 6.1 percent)