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Nigeria I Brewing Sector Report I July 2014
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Breweries Sector Report 2014
Unearthing the compelling growth potentials
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Investment Précis
Introduction: This report reassesses the most recent developments in the Nigerian
brewing space noting the fact that developments in the global brewing market stays
consistent with trends in domestic economies.
Global beer market: Mergers and Acquisitions (M&As) appear to be the most
remarkable trend in the global beer industry. To stay dominant, profitable and more
competitive, top players are expanding into markets with the highest potential for
growth via M&As. As beer volume growth begins to slow in developed markets,
Africa and emerging market economies (EMEs) are now the major engines for
growth. Given the above, the top beer companies seem to be on a quest to identify
which of the EMEs portends the largest potential for growth thereby driving a
remarkable global expansion into these growing markets in a bid to capture more
market share.
Africa’s blooming market: With a consumer market of over one billion people,
average GDP growth of 5% up to 2020 and a beer consumption per capita of 9liters
(vs.25liter peer average), beer volume growth in Africa is without doubt compelling.
Two of the big four largest players (SABM and Heineken) have their foot prints
firmly rooted in Africa. SABM dominates the continent with 35% volume share,
Heineken and CASTEL in the second position share 23% each whereas, Diageo
controls 13%. We think markets with the strongest fundamentals for growth will
attract further investment going forward.
Eye on the Nigerian brewing Space: Nigeria is the most populous and largest
economy in Africa, with substantial potential for a double digit growth. Huge
consumer market, beer consumption deficit and demand deficit plus intense
competition are amongst the major driving factors in the Nigerian brewing space.
Drags in discretionary spending as well as security challenges remain the key
challenges to the budding prospect. Nonetheless, we project five year beer volume
growth at 24.25mhl, translating to a 5% five year average growth rate.
Dominant global players: Heineken N.V controls 70% of Nigerian beer market with
majority stake in Nigerian breweries, Consolidated and Champion breweries Plc.
Diageo is the second major player (27%) through its ownership of GUINESS Plc. New
entrant, SABMiller, is challenging the dominance of the major players via stake in
International breweries and Pabod breweries.
…Unearthing the compelling growth potentials: In this report, we uncover the eye-
catching growth potential in the Nigerian beer market as a key volume growth
driver in Africa and the rest of EMEs.
Analyst Olawale Olusi [email protected] +2348025672325
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Table of Content Executive précis 2
1. Brewing in the Global Space 5-8
Overview 5
Industry Consolidation… shaping the global market dynamics 6
Global beer market outlook 8
2. The African Brewing Market 9-12
Eye Catching Growth Story 9
Competitive Landscape in Africa 11
Prospect For Growth Remain Strong 12
3. The Nigerian Brewery Sector Overview 13-21
The Nigerian Beverage Market 13
Structure of the Nigerian Beer market 15
Market Share: A terrain of two dominant players 16
Beer consumption: Nigerians drink-less compared to peers 19
Key Growth drivers: The demographic dividend fulcrum 19
Major Challenges: Discretionary spending softens 21
4. Value Chain Analysis 22-27
Beer Making Inputs 22
Five Competitive Forces Shaping the Beer Industry In Nigeria 26
Financial Ratio analysis 27
5. Industry Prospect and Valuation 28-30
Valuation 28
Industry prospects 29
Where do we see the beer market going forward? 30
6. Company Analysis 31-53
Quoted Brewers 31
Nigerian Breweries Plc. 33-38
Company Profile 34
Route to the Market 35
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Performance + Outlook 36
Guinness Nigeria Plc. 39-42
Company Profile 40
Route to the Market 41
Performance outlook 42
International Breweries Plc. 44-50
Company Profile 46
Route to the Market 47
Performance and outlook 48
Other Listed Beer Makers 51-53
Champion Breweries plc. 51
Jos Int. Breweries Plc. 52
Premier Breweries Plc. 53
Golden Guinea Breweries. Plc. 53
Non-Quoted Brewer: Consolidated Breweries Plc. 53
7. Concluding Highlights 53
8. Appendices (Financials: Historical+ Forecast) 54-60
9. Analyst certification, Disclaimer and Disclosure 61-65
10. Glossary 66-67
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Asia35%
America29%
Europe28%
Africa7%
Australia1%
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Asia America Europe Africa Australia
Mill
ion
s
2011 2012
1. Brewing in the Global Space
1.1 Overview
Beer is the most widely consumed alcoholic beverage in the world after water
and tea. According to Euro-monitor, Beer volume and value grew by 7% and 2%
respectively in 2013. Canadian global beer trend report estimates beer
consumption at 2bn hectoliters (hl) in 2013.
Despite the effect of global economic crunch on discretionary spending and by
implication on the beer consumption, the Canadian beer report held that
average growth of the global beer industry is expected to expand by 2.8%
between 2009 and 2015, although this is expected to vary across regions. The
Middle East market is forecast to grow by 5.5% CAGR (2009 to 2015) while Asian
and African markets are to expand at 5% CAGR and Latin American by 3%. In
contrast, consumption in European and American markets is expected to
experience marginal growth in the same period.
Though the global growth in the industry is expected to be driven by the
developing markets, European and American markets continue to account for
more than 50% of global beer production.
Exhibit1: Global Beer Production (Mhl) by Region 2013
Source: Barth Report 2013
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25.1%
11.8%
6.8%5.0% 4.8% 4.2%
42.3%
2.5%
12.5%
22.5%
32.5%
42.5%
CHINA USA BRAZIL RUSSIA GERMANY MEXICO others
Top 4 Countries
48%
Next 3534%
Others18%
According to the 2013 Barth report, Africa accounts for 7% of the total global
production making the region the least producer. Asia is the largest producer
accounting for 35% of total global production in 2012. USA is the second with
11.8%; Brazil, Russia, Germany and Mexico follow with 6.8%, 5%, 4.8% and 4.2%
accordingly.
When considered globally, an obvious feature is the dominance of global
production of beer by the four brewing giants (ABInBev, SABMiller, Heineken
and Carlsberg) accounting for 48% of total volume produced.
1.2 Industry Consolidation… shaping the global market dynamics
Industry consolidation is perhaps the most noteworthy feature in the global
brewing space as globalization and rapid consolidation continue to inform M&A
amongst the largest global industry player. Over the last ten years the top ten
industry leaders have gone through continued steady consolidation in a bid to
forge stronger, more profitable and competitive global institutions.
Exhibit3 below shows how market share among top players has been changed
between 2003 and 2013, with Anheuser-Busch topping the list in 2003 (8.5%
market share). However, in 2013, consolidation between Anheuser-Butsch,
Interbrew and Ambev has led to a more competitive, stronger and bigger
ABInBev with 21% market share.
In 2013, ABInBev completed the acquisition of Mexican brewer, Grupo Modelo.
Heineken acquired Asia Pacific Breweries and Molson Coors acquired StarBev in
Central and Eastern Europe. CR Snow (SABMiller’s joint venture with CRE)
announced the intended acquisition of Kingsway Brewery in China.
Exhibit2: Global Beer production by Brewers Global Beer Production by Country
Source: Barth Report 2013
ABInBev, SABMiller, Heineken and Carlsberg have emerged top four after series of consolidations.
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ABinBEV, 21%
SABMiller, 10%
Heineken, 9%
Carlsberg, 6%
CRB, 6%
Tsingtao, 4%
Molson coors, 3%
Beijing yanjing, 3%
kirin holdco, 3%
Asashi group, 1%
others, 35%
MARKET SHARE 352.9
190171.7
120.4
0
50
100
150
200
250
300
350
ABINBEV SABMiller Heineken Carlsberg
BIG 4 GLOBAL PRODUCER…
The biggest five global industry players produce 52% global beer volume. They
continue to drive regional expansion both organically and through acquisitions;
increasing their collective share of the market at the expense of smaller players,
while the next 6 firms produce 13%. Others account for the remaining 35%.
ABInBev, SAB-Miller (SABM), Heineken and Carlsberg are currently the top
global players by market share with 21%, 10%, 9% and 6% in that order.
Exhibit4a: Global Market Share among Top Ten Global Players
Source: Euro-monitor, Goldman Sachs Global Investment Research and Barth report
Biggest five global Firms account for 52% global volume produced
Exhibit3: Industry Consolidation in the Global Brewing Space
2003 2013
Anheuser-Busch 8.50% ABInBev 21%
SABMiller 7.60% SABMiller 10%
INTERBREW 6.00% Heineken 9%
HEINEKEN 5.70% Carlsberg 6%
Ambev 4.00% CRB 6%
Grupo Modelo 2.60% Tsingtao 4%
Adolph Coor co. 2.60% Molson Coors 3%
Tsingtao 2.20% Beijing Yanjing 3%
Carlsberg 2.00% Kirin hold co 3%
Asashi group 2.00% Asashi group 1%
Others 56.80% others 35%
Source: Euro-monitor, Goldman Sachs Global Investment Research
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1.3 Global beer market outlook: Africa and developing markets to drive growth
Overall, with slowing growth in beer volume in the developed market,
indications remain enduring that developing markets are the main engine to
drive growth in the global beer market. With improving disposable income and
consumer spending, consumers in these markets are seen trading unbranded
alcohol for more standardized beer, hence, strong volume growth in Africa, Asia
and Latin America. However, the global players continue to screen these
markets with a realization of uneven attractiveness amongst them. African and
Latin American markets emerge as spotlight for long-term global volume
growth.
African and Latin American
markets are spotlights for
long-term global volume
growth.
Exhibit4b: Around the World in Alcohol
Source: WHO
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2. The African Brewing Market
2.1 Eye Catching Growth Story
With a population size of 1.03bn people and a projected growth rate of 2%
(CAGR) up to 2020, Africa will account for 20% of the global population by 2020
according to IMF estimates. By income, the continent is projected to grow by 7%
up to 2020. Six among the top ten fastest growing economies in the world are in
Africa, with Nigeria, the most populous and largest economy growing at an
average growth rate of 6.5% for the past 5 years.
Relatively, Beer volume has shown remarkable growth in Africa in the last 10
year due to improving income level, expanding middle class and changing
demographic features compared to other region. We reviewed data on beer
volume growth globally, Exhibit 5 below indicates that, while the composition of
volume growth continues to dip in the America and Europe, (32.40% &34.90% in
2003 vs. 29.28% & 27.94% in 2012), Africa and Asia have sustained a steady
growth in the same period. (26.90% &4.40% in 2003 vs. 35% & 6.41% in 2012).
1.03Bn people
Population growth of 2% CAGR to
2020
Avrg. GDP growth of 6% to 2020
Six fastest growing economies are in
Africa
2011-2020 CAGR Beer market 4.1%
BCCP 9liters Vs.
2012 Beer production 125.06 mhl
Africa has sustained steady
growth in a decade
compared to developed
markets.
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1%
3%
5%
7%
9%
0
10
20
30
40
50
60
E/ Europe Latin America China andS/korea
S/E Asia AME India and Srilanka
BCCP Avrg BCCP CAGR
Africa4%
2003
Africa7%
2012
Despite the appealing fundamentals, Beer consumption per capita (BCCP) in
Africa is very low (9liter per head, Global insight 2012), compared to other
markets. This number implies that the potential for growth for beer
consumption is massive in the region. The sector’s 10-year average growth rate
(CAGR) of 4.1% substantiates this view.
Exhibit 6: Per Capital beer consumption (BCCP) in African vs. Peers and 2020 forecast CAGR
Source: Global Insight, Euro-monitor, Plato beer report
Exhibit 5: African Beer Volume Growth in 2003 vs. 2012
Source: Beverage Marketing corp., Barth Report.
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35%
23%
23%
13%
6%
SABM
HEINEKEN
CASTEL/BGI
DIAGEO
OTHERS
2.2 Competitive Landscape in Africa
The Africa beer market is dominated by Global brands such as SABM and
Heineken, two of the big four. They have their foot prints firmly rooted in Africa.
SABM dominates the continent with 35% market share; Heineken and CASTEL
occupy the second position with 23% each, Diageo, the parent company of
Guinness Nigeria Plc. Follows with 13% share of the market, Others makers
control the residual 6%.
Source: Global Insight
Exhibit 8: Beer volume market share in Africa
Source: Plato African beer report 2012
Exhibit7: Beer Volume Growth In Africa Vs. Global Growth
REGION 2003 2005 2007 2008 2011 2012
Asia 26.90% 28.50% 31.20% 31.70% 35.25% 35.27%
America 32.40% 31.60% 29.90% 30.00% 29.31% 29.28%
Europe 34.90% 34.10% 33.10% 32.20% 28.49% 27.94%
Africa 4.40% 4.50% 4.70% 5.00% 5.82% 6.41%
Australia 1.40% 1.30% 1.20% 1.20% 1.13% 1.11%
TOTAL 100% 100% 100% 100% 100% 100%
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2.3 Prospect For Growth Remain Strong
Going forward, the prospect for long term growth of the sector in Africa and
developing economies remain strong. This will be driven by factors such as
improving level of income, huge consumer market and attractive demographics.
Besides, in a bid to enlarge market share and stay dominant the degree of rapid
consolidation (M&A) among major players in globally, is expected to serve as an
impetus for this growth. Most of the major firms are currently undergoing
regional expansion, both organically and via acquisition most especially into the
high growth sub regions in Africa.
However, we note the awareness of uneven growth amongst these states. On
the back of this, we suspect that attention will be focused majorly on economies
in Africa with the strongest fundamentals for growth.
We suspect that attention
will focused on markets with
the strongest fundamentals
for growth in Africa
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Demographics
Population: 170M (2013est)
Most populous in Africa
c.70% of population < 30 years
Median age: 19yrs
Religion: 45% Christian, 48% Muslim
and 7% indigenous
Economy
Largest economy in Africa
GDP NGN80.09Tri
5yr Avrg. GDP Growth of 6.5%
Largest oil producer in Africa
Beer Market
10yrs Avrg. growth of 10%, 2011
2020 est. CAGR of 5.9%
Installed capacity: >26.9mhl
BCCP: 10Liters
Political Stability
Moderate
3. The Nigerian Brewery Sector Overview
3.1 The Nigerian Beverage Market
Nigeria’s beverage industry is largely dominated by the Beer and Carbonated
Soft drink (CSD). Packaged Juice, Spirit, Wine and Other ‘Ready-to-drink’
beverages (RTDs) cover the remainder. Report by Heineken quoted CSP
magazine and indicated that, of the total beverage volume in Nigeria, 45.29% is
attributed to the beer segment, 42.06% goes to CSDs, Packaged Juice takes
10.29% whilst Spirit, Wine and RTDs takes the remaining 2.35% in 2010.
The Soft Drink Market: The CSD segment of the market is dominated by the
Nigerian bottling company (NBC- bottles Coca-Cola and Fanta brands) given the
long established history of the Coca-Cola Company in the country together with
strong distribution network and aggressive marketing techniques. 7-UP bottling
company, the bottlers of the Pepsi and Mirinda brands is however another
multinational CSD player.
Coca-cola dominates the
CSD segment, but La-Casera
is gaining a lot of ground.
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15.414.3
3.5
0.3 0.3 0.2
0
4
8
12
16
Beer CSD Juice Spirit Wine RTDs
Notable among the domestic players is the La Casera Co, Ltd (formerly known
as Classic Beverages Nigeria Ltd)the producer of the La Casera brand, with
innovative marketing strategy such as beauty contests (Miss La Casera) continue
to gain a distinct proportion of the market. The company recently introduced
the first sugar-free carbonate with real fruit, Latina. According to Euro-monitor,
the company was one of the first to use PET (Polyethylene Terephthalate)
bottles and has introduced a new 'Ice Feel' bottle to raise the stakes.
The Packaged Juice segment: Awareness about Health and Nutritional balance
(better education about nutrition and risk factor embedded in high sugar
consumption which may lead to diabetes, obesity and hypertension) is growing
amongst Nigerians. This has so far led to a sustained growth in the fruit juice
consumption as against CSDs. Other notable factors include busier life style
amongst the rising middle class has left majority with less time to prepare
balance nutrition for their family hence juice consumption is resorted to as a
suitable way of ensuring the intake of essential nutrients.
Also, the sophisticated social life style and the value Nigerians placed on social
occasions also serve as contributory factor driving the growth of juice
consumption amongst Nigerians. Hence, more consumers generally favour
packaged juice to CSDs. Chi Nigeria Ltd (45% volume share) dominates the
segment with varieties of the Chivita brand, ahead of NBC’s 5-Alive brand (35%
volume share). Other players in the segment include GlaxoSmithKline Nigeria
Plc, Dansa Foods, Cway Food & Beverages Co Nig Ltd, Frutta Juice & Services Ltd
and Fumman Foods Industries Nigeria Ltd.
Source: Heineken, CSP
sa
Exhibit 9: Beverage Market Breakdown In Nigeria (mhl) in 2010f
Health and nutritional
awareness is driving
growth… Chi-vita controls
45% market share.
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5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
21.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E
The Spirit and Wine Segment: A phenomenal game changer in the spirit
segment of the alcoholic drink market was the introduction of Alomo bitters in
2010, an alcoholic herbal drink that challenged the dominance of all other
alcoholic drinks (other spirit) including beer. The product was favoured by the
majority as a result of the perceived medicinal benefits and virility in men
accorded to herbal products.
The product is inexpensive (NGN180 to NGN250) compared to other spirits and
Lagers. Growth in consumption of Alomo was partly responsible for the drag in
the performance of beer in 2012 according to Euro-monitor. As a result of this
trend, Guinness Nigeria Plc (a subsidiary of the Diageo group with key strength
in the spirit segment in Africa) recently launched ‘Orijin bitters’, a blend of herbs
and fruits with bitter-sweet flavor to challenge the dominance of Alomo bitters
in the segment.
3.2 Structure of the Nigerian Beer Market
Growth: Though the history of the Nigerian Beer industry may be traced back to
period prior to the independence of Nigeria. It was the establishment of
Nigerian Breweries limited in 1946 that pioneered brewing in Nigeria. Based on
the report by the Financial Derivative Company (FDC) on the Nigerian beer
market, beer makes up 96% of all alcohol sales in Nigeria, historical data
suggests that beer consumption in Nigeria has been experiencing an average
growth of 10% for the last ten years (2002 – 2012).
CAGR 10%
Exhibit 10: 10Yr Growth path of the Nigerian Beer Market
Source: Heineken, Meristem Research NB: 2013E is based on Meristem Research’s estimate
Alomo Bitters threatens
other alcoholic beverages
including beer… Guinness
introduced Orijin bitters in
reaction
Beer market growth
experienced drags in recent
time compare to historical
average of 10%.
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58%
15%
27%
Beer Segment
Lager
Stout
Malt40%
28%
13%
5%
6%
5%3%
Beer Parlour
Provision Store
Informal Conveniences
Kiosk
Restaurant
Hotel
Others
This growth hinges on the huge demographic features, a population of 170M
people, growing middle class, abundant oil reserves, and an enormous
consumer market. As at 2012 estimate, the value of the Nigerian beer market
pegged at 20mhl. However, as a result of higher cost of living, slowing
discretionary income pressuring spending and insecurity challenges, recent
performance of the sector has recorded a drag. The industry climbed 3% in
2012 compared with 11% in 2011, while the 2013 performance has been
estimated to decline by 3%.
Segmentation and Market Channel: A further breakdown of the Nigerian beer
market indicates that of the total beer consumption in Nigeria, Lager beer takes
58% of the market share; Stout has 27% while 15% goes to Malt. In terms of
consumption channels, majority of Nigeria beer consumers (c.40%) drink in beer
Parlours, 28% through provisional store purchases, 13% via informal
convenience spots, while the rest go through kiosks, restaurants and hotels and
others.
3.3 Market Share: A terrain of two dominant players
The Nigerian brewing space can be approximated as an oligopolistic-duopoly,
with two major players controlling about 90% of the market, while other fringe
players control a thin margin of the market.
Nigerian breweries (NB), without mincing words, is the biggest player in the
sector with a total installed capacity of 15.4mhl (61% volume share). Guinness
Source: Nigeria Breweries
Exhibit 11: Segment Distribution of the Beer Market Nigeria Beer Market Channels
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61%
27%
10%2% Beer Volume Share
NB
Guinness
consolidated
others
Nigeria Plc. (GUINNESS) is the second biggest player (5.5mhl installed brewing
capacity and 27% share), while others include consolidated breweries
(CONSBREW) with 3.7mhl (10% market share), International breweries Plc
(0.5mhl), Champion Breweries (CHAMPION) and Jos Breweries (JOSBREW) are
among the fringe players (2% market share).
Heineken controls over 70%: Heineken N.V Global, with majority stake in NB,
CONSBREW and Champion Breweries Nigeria Plc. control 71% of the Nigerian
beer market. The three companies operate independently in the Nigerian
market, but their operations are consolidated in the financial of Heineken
global. Champion Breweries Nigeria Plc. was fully integrated in 2013 via a
transfer of 57% stake from CONSBREW to Heineken through her wholly owned
subsidiary, Raysum Nig. Ltd.
Heineken recently announced its intention to merge the operations of NB and
CONSBREW. Post merger, both entities are to exist as NB with a wider product
portfolio in both the premium and value segment of the market. It must be
noted that Heineken has been strategic in the operations of both companies in
terms of area of focus. Whilst NB dominates the market in the premium and
mainstream segment of the of the beer market with brands like Gulder, Star
lager and Heineken, CONSBREW plays the same role in the lower end/Savings
segment with cheaper and low income earner friendly brands like ‘33’ Export
lager, Turbo King amongst others.
GUINNESS controls 27% of the Nigerian market: GUINNESS is a subsidiary of
the Diageo Group. The company produces the most popular stout (Guinness
extra stout). The beer maker started operations in Nigeria in 1963, with Lagos as
Heineken controls more than
70% of the market with
interest in NB, CONSBREW
and CHAMPION
Exhibit 12: Nigeria Beer Market Share
Source: Heineken, FDCL, Euro-Monitor
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its first location outside the British Isle to brew the Guinness brand. Currently,
Nigeria is the largest Guinness Stout Market in the world by Net Sales Value.
Guinness has a market share of 27% in Nigeria.
SABMiller threatens dominant players: The latest amongst the global bigwigs in
Nigeria is SABM through its stake in Pabod Breweries Ltd (Port Harcourt) in
2008. In 2012, following the combination of the Castel and SABMiller businesses
in Nigeria and Angola, SABM took operational management of the Castel
Nigerian business, International Breweries (INTBREW) on the 1st of January
2012. Other acquisitions include, Intafact Beverages Limited (Onitsha), Voltic
Nigeria Ltd (Lagos). SABM is the largest beer producer in Africa and 2nd largest
brewer in the world with more than 200 beer brands and some 70,000
employees in over 75 countries.
It must be said that with recent investment of over US$100 million in Nigeria,
SABM is intensifying its penetration into the Nigerian market through strategic
regional approach, the most popular brands currently gaining a lot of patronage
in the country include the Trophy and Hero brands with markets in the South
Western and Eastern parts of Nigeria respectively.
SABM continues to intensify
regional penetration...Trophy
& Hero Lagers are piercing the
western and eastern Nigeria.
Source: Company fillings
Exhibit 13: Global Players in Nigeria 2014
Global players Domestic Subsidiaries Installed capacity
(mhl)
HEINEKEN GLOBAL Nigerian breweries 15.4
Consolidated breweries 3.7
Champion Breweries 0.5
19.6
DIAGEO GROUP Guinness Nig. Plc. 5.5
SABMILLER International breweries 1.8
Pabod Breweries Ltd (PH) na
Intafact Beverages Ltd (Onitsha) na
Voltic Nigeria Ltd (Lagos) na
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Growth Drivers
Growing population
Discresionary Income DemographicsEffective
marketingDistribution network
Acquisition and Expansion
-
10
20
30
40
50
60
70
S/Africa Angola Kenya Namibia Nigeria Tanzania
BCCP
Peer average
Global Avrg.
3.4 Beer Consumption: Nigerians drink-less compared to peers
In terms of beer consumption, Nigeria‘s beer consumption per capita (BCCP)
was estimated at 11 liters in 2012. Though this represents a significant growth
compared to 5 liters in 1999, it is still very low in the context of african peer
average of 36 liters (S/Africa-62liters, Angola-50liters, Kenya-42liters and
Namibia-40liters) and 25.67 liters global average.
3.5 Key growth drivers: The demographic dividend fulcrum
Population: A critical factor driving the beer market growth in Nigeria has been
the huge population of the country. 2013 population estimate stays at
170Million, which puts the country’s consumer market on an amazingly
attractive level.
Exhibit 14: Nigeria Beer Consumption Per Capita (BCCP) in liters 2012
Source: Plato, Euro-monitor, Global Insight
At 11liters per head, the
prospect for beer volume
growth is massive.
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Income: The correlation between the beer consumption and income growth is
positive and significant according to recent studies. Income per head in Nigeria
has been growing reasonably well over the last decade at an average of 7.5%
according to World Bank data, while average growth of the beer market over
the same period correspond to this at 11%. Hence with rising level of disposable
income, discresionary consumption is expected to rise. However, the last two
years have witnessed a huge amount of pressure on consumer spending given
the removal of fuel subsidy, higher cost of living and security challenge which
have all led to the drag in the volume growth amongst major players in the
sector. Nevertheless, we think with election spending and improvement in
security situation, this pressure should ease going forward.
Demographics: Nigerian demographic dividend is another key driver of growth
of the breweries market. The country has a median age of 19years,c.55% of the
population is within the age bracket of 15 to 65years. The age distribution is
bottom heavy with only 2.73% as aged. Middle class is rising and urbanization
rate is expected to maintain a growth rate of 3.75% up till 15. We believe these
features point to the likelihood for beer consumption growth.
Effective Marketing: Marketing and distribution efforts among brewers is
another key growth factor for the industry. Top Management of the two major
players (Nigerian Breweries and Guinness) continue to leverage on strategic
means to market dominance with huge expenditure on marketing and
distributive activities to stay dominant, visible and appealing to the huge
youthful popuation. Sponsorship of football games, advertisements on national
and international events and reality shows are amongst the popular channels
used in reaching the target market. A more meticulous observation suggests
that NB has been more consistent with the sponsorships of Nigerian reality TV
shows such as Gulder Ultimate Search, Maltina Dance All, Star Quest and the
company’s consistent sponsorship of the UEFA Champions League in recent
times.
Distribution Network: In terms of distribution network, NB sustains dominance
with the widest distribution network. The company has a fully integrated route
to the market, (total retail outlets of 525500, 35000 bulk breakers, 2000
wholesalers and 150 key distributors) and brewering plants well spread across
the southern and northern geo-polical zones of the Country. Its major
competitor, Guiness has a distribution network of over 200 Guinness
distribution centers, substantial amount of distributors and a distribution driving
team.
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Major Challenges
Declining consumer spending
Competition from other
Non-Alcoholic beverages
High cost of living
Health awareness
Religiousity
Security challenges
Acquisition and expansion: As noted earlier, industry consolidation is a
recurring affair and a critical success factor in the global brewering sector.
Ability to expand and possibly acquire less dominant players is a major driving
force in increasing market share and maintaining dominance. While the two
leading brewers have leveraged on expansion and CAPEX over the years, the
entrance of SABM with the acquisition of INTBREW and PABOD breweries has
challenged the dominance of the leading two, reinforcing how acquisitions can
be crucial in the development of brewery businesses.
3.6 Major Challenges: Discretionary spending softens
Declining discretionary spending: A recent drag to growth in recent times is the
waning discretionary spending being observed in Nigeria. This is said to have
dipped as a result of partial removal of fuel subsidy in 2012 which has resulted
in higher cost of living, and consequently, less expenditure on discretionary
consumption.
Security challenges: The heightened menace of extremist activities in the
northern part of the country brought about an increase in prices of basic food
stuff and hence increased the cost of living. Also, frequent bombing and
sporadic shooting, has gradually discouraged going to joints and bars that
account for 40% of beer consumption channel. Higher living cost pressurizes
household income and consumption spending, which trickles down to less
demand for beer.
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Milling
Mashing
Filtering
Boiling
Fermenting
Filtering
Packaging
Distribution
Non-alcoholic beverages: Apart from the lesser spending impact, increasing
competition from non-alcoholic beverages as well as other alcoholic beverages
excluding beers, as noted above (Alomo bitters) continue to challenge the
market share of the beer segment of the beverage industry.
We attribute other challenges dragging the growth of the brewers to factors
such as increasing health consciousness amongst the Nigerian middle class,
drink-drive and drinking age campaigns, level of religious belief and Sharia laws
in some part of the Northern region.
4.0 Value Chain Analysis
4.1 Beer Making Inputs
Major inputs: Key inputs in the preparation beer include Malting grains (Malting
barley, Sorghum and Maize), Hops, yeast and water. Average price of Barley in
the world market has stayed at USD133.90 so far in 2014 compared to over
USD200 in 2013 (12M average). Due to local content strategy, a 5% import duty
BARLEY & SORGHUM WATER
HOPS
YEAST
BOTTLE CAN
Source: Guinness, SABM, Heineken, Meristem research
Exhibit15: Beer Making Value Chain
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•Barley
•Sorghum
•Maize
Malting Grain
Hop Water Yeast
is imposed on Barley importation. Imported barley, however, still makes up 50%
of consumption among brewers in Nigeria (through a joint purchase agreement
with their parent companies).
Industry sources amonst brewers: Malting grains account for c.40% while
Sorghum constitutes 7% of raw materials amongst major beer makers. NB
currently sources 43% of her raw materials locally but has a target of 60% local
sourcing of malting grains as part of its local content strategy. SABM’s strategic
plans include buying grains from local farmers in a bid to negotiate a tax
reduction agreement with government. The company is currently considering
the use of Cassava as a replacement for malting grain as a way of offering more
affordable beer to Africans. GUINNESS sources Barley majorly from Scotland,
Ireland and Kenya. The company sources for Sorghum majorly from Nigeria,
Ghana and Tanzania.
Nigeria is the largest producer of food sorghum (according to Heineken) which is
particularly attractive to brewers because of its malting quality. NB leverages on
local sorghum and continues to invest in research into development of better
capabilities. Hence, the company has maintained cost leadership amongst
brewers. Recent data indicate moderating prices of key inputs, so we do not
see any major risk to cost structure in the short to medium term. We expect
brewers to continue to capitalize on innovation to minimise costs.
By-products: Spent inputs from beer making production process serve as
animal feeds (spent grains), fertilizers (Spent Hops), Irrigation (Water) and yeast
used for fermentation serves as input in Health products.
Animal feeds Fertilizers Health Product Irrigation
BY PRODUCTS
Source: Meristem Research
Exhibit 16: Beer Making Ingredients + By Products
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100
150
200
250
300
2010 10 10 11 11 11 12 12 12 13 13 13 2014
Barley ($/mt) Sorghum ($/mt)
Packaging/ Bottling: A recent trend in Nigerian is the growth in the amount of
Canned beer. Compare to 2006 with 100% bottle package, canned beer has
grown to 8% as at 2011. Currently 75% of Cans in Nigeria are for malted drinks,
this proportion is followed by beer and then CSD.
Local Aluminium Can Companies: Establishment of GZ Industries (GZI), the first
Aluminium can beverage company in Nigeria has reduced the amount of
imported can into the country and has enhanced local content strategy. Prior to
the establishment of GZI, 100% of can consumed in Nigeria were imported. The
company currently has a 1.4bn unit of can production capacity per anum with a
target of 1.6bn units by 2016.
The company recently expanded its operation into Aba (Eastern Nigeria) to
meet the needs in the eastern part of the country, where major brewers are
expanding or building new capacity to meet the need of its customers (beer
makers). We think this is a great development for the breweries sector as
expansion of the can producer is expected indirectly enhance the cost profile
in the sector. However, the 100% dependence of GZI on global price of
aluminium exposes beer makers to indirect risks of global price volatility.
Exhibit17: Global price of Malted grains
Source: World Bank
GZ Industries (GZI), the first
and the only Aluminum Can
beverage company in Nigeria
Exhibit18: PACKAGING
DATE BOTTLE CAN
2006 100% 0%
2009 97% 3%
2011 92% 8%
Source: Heineken
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1300
1500
1700
1900
2100
2300
2500
2700
2900
2010 10 10 11 11 11 12 12 12 13 13 13 2014
Aluminum ($/mt)
Exhibit 19: Global price of Aluminium (USD)
Source: World Bank
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•The buyers of beer are represented by alcoholic beverage wholesalers, supermarkets, as well as beer parlours, restaurants and clubs.
•There is a large number of buyers
•The buyers are able to switch brands easily
•Buyers' power is high.
•High buyers’ power is offset by varying preferences of the consumers
Buyer Power -Moderate
•The power of suppliers is Moderate
•Beer producers need the same input to produce beer (Malted barley, hops, sugar and water)
•No raw materials differentiation.
•Innovation and creativity are the key sources competitive advantage.
Supplier Power-Moderate
•This threat is moderate given that major regulation is the possession of the license requirements to operate in Nigeria.
•Apart from states with Sharia laws that forbid alcoholic products, there are no strict law regulations on alcoholic products in Nigeria.
•Though CAPEX requirement is huge, itis not a major challenge to global player with eyes on developing markets.
Threat of New Entrants-Moderate
•This is high given a large diversity of substitutes to beer
•Other alcoholic and non-alcoholic beverages and soft drinks (CSD, Wines, spirit and jucie).
•Cheaper prices of other alcoholic beverages
•Rising health concerns of the consumers.
Threat of Substitutes-High
•Rivalry is high
•Industry is oligopolistic
•Two dominant players have more than 90% market share.
•Other smaller players are gradually establishing regional visibility.
Degree of Rivalry-High
4.2 Five Competitive Forces Shaping the Beer Industry In Nigeria
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4.3 Financial Ratio analysis
Cost to sales ratio: 5-year average cost to sales ratio for the Nigerian beer
market settles at 52.63%. Common size analysis of the major players indicates
that NB holds cost leadership (51% 5Yr average cost to sales) compared to
GUINNESS (53.46% 5Yr average cost to sales).
OPEX Margin: The Nigerian beer market is highly advert intensive, with keen
competition between dominant player to expand or retain market share. As a
result of this, OPEX margin (sales and Distribution expenses) averaged 24.51%
among key players. 5yr average OPEX margin shows that NB stayed dominant in
terms of OPEX effciency with 23.54%, compare to GUINNES (25.47%) .
Profitability: Industry net-margin as proxied by the 5yr average of the two
dominant firms stood at 15.25%. Return on Equity (ROE) averaged 44.36% while
Return on total Asset averaged 19.69% for the sector. In all NB show better
operational efficiency compare to GUINNESS with all its (NB) key performance
metric showing better effeciency compare to the industry. Overall, Return on
Equity (ROE) is driven largely by Net profit margin which relies majorly on cost
effciency.
Ratio Analysis NB GUINNESS INTBREW Average
Cost to Sales Ratio 51.80% 53.46% 61.45% 55.57%
Gross Profit Margin 48.20% 46.54% 38.55% 44.43%
OPEX Margin 23.54% 25.47% 28.37% 25.79%
ROAA 21.93% 17.44% 0.71% 13.36%
Current Ratio (x) 0.75 1.13 0.95 0.94
Quick Ratio (x) 0.54 0.83 0.88 0.75
Cash ratio (x) 0.21 0.3 0.07 0.19
Inventory turnover (x) 4.87 3.54 3.12 3.84
ROE 49.40% 39.32% -12.07% 25.55%
Net Margin 16.19% 14.32% -0.94% 9.86%
Asset Turnover (x) 1.25 1.18 0.58 1.00
Leverage (x) 2.46 2.36 3.98 2.93
EBITDA Margin 30.21% 23.52% 8.67% 20.80%
Operating profit (EBIT) margin 25.05% 21.57% 11.24% 19.29%
Interest burden 0.95 0.95 1.63 1.18
Interest Coverage (X) 54.97 25.14 41.86 40.66
Tax burden 0.68 0.7 0.14 0.51
Interest coverage 54.97 25.39 40.35 40.24
Exhibit 20: Industry Ratio comparison (5-Year Average)
Source: Meristem Research 2014
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5. Industry Prospect and Valuation 5.1 Valuation
Seven brewing companies are listed on the Nigerian stock exchange (NSE), with
NGN1.49trillion market capitalization. Together, they make up 12.37% of total
market capitalization of the NSE. Of the seven listed brewers NB, GUINNESS and
INTBREW represent 99% of the brewer market cap. Consequent on this, we
adopt NB, GUINNESS and INTBREW as proxies to represent the Nigerian brewing
space.
By relative valuation, current earnings multiples put sector average PE ratio at
36.03x, this is ahead of three years historical average of 27.79x. While Book
value multiple suggests a current PBV ratio of 9.57x compared to 3 yr average
PBV ratio of 7.87x.
Though PE ratio suggests that the sector is over priced compared to historical
price, whilst PBV of 9.57x vs 7.87x historical average support this position
further, we think the sector may be fairly over price at current price. Dividend
yield is however trailing the market at 2.70% vs. market yield of 3.47%.
We think the sector may be
fairly over price at current
price as current PE of 36.03x is
ahead of average PE of 27.79
Tickers Div. Yield Average P/E Current PE Average P/B current P/B
GUINNESS 3.89% 27.77x 31.89x 7.91 7.18x
NB 3.07% 25.72x 30.83x 12.27 12.99x
INTBREW 1.14% 29.90x 45.38x 3.43 8.55x
Sector Average
2.70% 27.79x 36.03x 7.87x 9.57x
Exhibit 21: Sector Valuation
Source: Meristem research
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Beer Vol.
Beer Vol. = 2.01 PCIR² = 0.55
-
5.0
10.0
15.0
20.0
25.0
6.76 7.26 7.83 8.04 8.32 8.62 8.89 9.26 9.73 10.16 10.52
Market value Linear (Market value)
5.2 Industry prospects
Despite recent slowing growth in the sector, we see huge potential for growth
going forward. Exhibit 22 below show the relationship between beer market
value growth and Per Capita income (PCI) growth in Nigeria.
Our ten years correlation analysis between beer market growth and increasing
per capital income established a strong positive correlation (0.97) between
both variables.This is further butressed the slope and R-Square value of 2.01
and 55% respectively. In sum, these metrics indicate that beer market
expansion stays strongly consistent with Per Capita income (PCI) growth in
Nigeria.
Also, the fundamentals of the Nigerian Economy remain very strong. According
to NBS, Population growth is projected to grow at 2.3%. This puts the country’s
population at over 220M by 2025. The UN forecasts that Nigeria’s population
will surpass that of the US by 2050. Middle class and Urbanisation rate are
expanding significantly, and age ditribution favours a youthful workforce (more
than 55% between age 15 to 65 years), implying increasing demographic
divdends for the country.
These numbers point to the fact that Nigeria remains a huge consumer market
for the beer sector to grow, and we expect this to translate into a massive
opportunity for growth.
Beer Volume growth is
consistent with Per Capita
income growth in Nigeria.
Exhibit 22: Correlation Analysis of Beer Market Volume vs.PCI (USD) in Nigeria (2002-2012)
Source: World Bank, Heineken, Meristem research
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140
Million
170
220
120
130
140
150
160
170
180
190
200
2005 06 07 08 09 10 11 12 13 2025
Mill
ion
s
3437
41 42
54
63
7181
85
9096
103
15
25
35
45
55
65
75
85
95
105
115
2010 2011 2012 2013f 2014f 2015f 2016f 2017ftr
illio
n
Old GDP New GDP
Macro Economic outlook: Nigeria’s GDP has sustained an average growth rate
of 6.5% over the last 7 years. Following the rebasing of the GDP of the country,
Nigeria became the largest economy in Africa with a GDP figure of USD510,
ahead of South Africa and 21st in the World. Per Capita income is estimated at
USD2,760 The services sector emerged as the major driver of the economy with
53% of sector breakdown. Agric and Industry now take 22% and 25% share
accordingly. Recent commitment of Governemnt to revive key sub- component
in the services sectors indicates that services sector growth may be larger than
anticipated (7.72%). Based on the foregoing we strongly believe that the
output level will continue to expand by over 6% for the next 5 years and this is
expected to impact the Beer market growth positively.
5.3 Where do we see the beer market going forward? Given the established strong positive correlation (relationship) between beer
market growth and income per head, juxtaposing this with the attractive
fundamentals of the Nigerian economy, we maintain that there exists a
significant positive relationship between income growth and Beer market
performance. Against this background, we project an annual growth rate of 5%
for the breweries sector going forward. Consequently, our projection put 5-
years beer market growth at 24.25mhl.
GDP is expected to grow by
over 6% for the next 5-yrs…
expected to impact beer
market positively
Our projection puts 5-year
beer market growth at
24.25mhl
Exhibit 23:Population Growth & Forecast Nigeria GDP (trn NGN) + Forecast
Source: NBS, World Bank
2.3% Growth
6.5% growth
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14.64
19
24.25
12
14
16
18
20
22
24
26
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
mh
l
6. Company Analysis
6.1 Quoted Brewers
There are seven quoted breweries company on the Nigerian stock exchange.
These include Nigerian Breweries Plc (NB), Guinness Nigeria Plc (GUINNESS),
Internatinal Breweries Plc (INTBREW), which are the three largest in terms of
market capitalization. Others include Champion breweries Plc. (CHAMPION), Jos
Breweries (JOSBREW), Golden Guinea Breweries Plc (GOLDBREW) and Premier
breweries (PREMBREW). All together, the seven listed beer producers have a
total market capitalization of NGN1.75trillion representing 12.36% of the NSE
market capitalization.
We further categorize the aforementioned beer makers into Large Cap (market
capitalization of NGN100bn and above), Mid Cap (Market capitalization
between NGN1bn to NGN100bn) and Small Cap (Market Capitalization less
than NGN100bn) brewers, based on market capitalization of these company.
Based on this classification, we classify NB and GUINNESS as large cap, INTBREW
CHAMPION and JOSBREW fell within the Mid Cap criteria while PREMBREW and
GOLDBREW are grouped as the Small Cap beer makers.
Exhibit 24: Nigeria Market Growth + 5Yr forcast (mhl)
Source: World Bank, Heineken, Meristem research
CAGR 5%
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The remainder of this report analyses the performance of each of these
companies. Though the availability of information on the Mid to Small Cap
stocks was a constraint, efforts were made to do a thorough overview of each of
these companies as mentioned above.
Source: NSE, Meristem Research
Exhibit 25: QUOTED BREWERIES FIRMS
Ticker Share
Outstanding (bn) Mkt. Price Mkt. Cap (bn’NGN’) Mkt. Cap (%) Rating
Large Cap
NB 7.56 178.20 1,347.19 77.04% HOLD
GUINNESS 1.51 198 298.98 17.10% HOLD
Mid Cap
INTBREW 3.26 28.05 91.44 5.23% SELL
CHAMPION 0.9 9.67 8.70 0.50% UNRATED
JOSBREW 0.56 2.58 1.44 0.08% UNRATED
Small Cap
GOLDBREW 0.27 0.71 0.19 0.01% UNRATED
PREMBREW 0.98 0.77 0.75 0.04% UNRATED
1,748.71 100.00%
Source: NSE, Meristem research
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0
1
2
3
4
5
6
2007 08 09 10 11 12 13 14
NB NSEASI
Target Price: NGN169.12
Rating: HOLD
Market Information NGN USD
Current Price 177.09 1.11 52wks high 181.03 1.14 52wks low 141.55 0.89
Mkt Cap 'bn 1,339 8.41 Average Value (mn) 278.83 1.75 Average vol.(mn) 1.709 0.01 S/Outstanding (bn) 7.563
Valuation Metrics NGN
Market Price 174.43 2014EPS
5.70
2014BVPS
14.86
12-month TP (N)
169.12
Capital Gain
-4.50%
Dividend Yield (2014)
2.92%
Total Return expected
-1.58%
Ratings HOLD
P/E
5.70x
P/BV 14.86x
Beta
1.32 COE
20.77%
ROE - 5 year avrg. 49.40% ROE - 2014 40.48%
Div. Payout 5 year avrg. 70.35% Div. Payout – 2014e 80..0%
PRICE TRAJECTORY
Sustaining Dominance through Strategic Expansion
Nigerian Breweries Plc. NSE: NB; Bloomberg; NB: NL
With an installed brewing capacity of 15.4mhl/pa and continuous capacity
improvement. The beer maker has a market share of c.60% in the Nigerian beer
industry. Following the recent acquisition of Sona Systems Associates Business
Management Limited and Life Breweries Company Limited from Heineken
International B.V, the premium beer maker has indicated the proposal to merge its
operation with that of Consolidated Breweries Plc, a sister firm in the value segment
of the sector. The market share of NB is expected to jump to over 70% once the
merger is concluded.
5.74% turnover growth in line with expectation: In the last 2014H1 result, NB posted
a turnover growth of 5.74% (NGN141.49bn vs. NGN133.82bn Q2:2013) despite issues
around keen competition, sector slowing growth due to pressured consumer
discretionary income and security challenges in the northern part of the country. We
attribute the sustained impressive performance of the premium beer maker to
increasing operating efficiency and well spread route to market.
Cost of sales increased by 5.79% year-on-year (NGN71.35bn Q2:2014 vs. NGN67.44bn
in Q2:2013) compared with most recent five year average growth of 12.35%;
suggesting improvement in cost management. Also, Cost to sales ratio settled at
50.42% in the period (vs. 50.40% in erstwhile period) to further buttress the
aforementioned most especially when compared to peer average of 52.63%., We
pegged our full year cost to sales ratio at 49.19% on the back of improving cost
management.
Earnings growth buoyed by declining finance cost: Juxtaposing revenue growth with
cost efficiency, NB posted a double-digit earnings growth, i.e. PBT and PAT growth of
23.95% and 15.53% respectively. The result indicates that earnings expansion was
driven not only by operating efficiency, but also by 37.53% decline (NGN2.37bn vs.
NGN3.82bn in Q2:2013) in interest expense and 60.12% increase in finance income
(NGN0.602bn vs. NGN0.376bn in prior period).
NB is rated a ‘Hold’ at current price: We adopt a blend of dividend discount model
(DDM) and relative pricing valuation to arrive at a fair value for NB. The company’s
consistent dividend payout history of 70.35% (5-year historical average) informed our
adoption of DDM model, while relative pricing model factors in some sentiment on
the stock. In all, valuation put target price at NGN169.12 which suggests an upward
review from NGN156.11; but a downside potential of 4.50% compared to current
price of NGN177.09. We therefore maintain our ‘HOLD’ rating on the stock.
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HEINEKEN54%
STANBIC NOMINEES
32%
OTHERS14%
6.2.1 Company Profile
NB has over 6 decades history of operations in the Nigerian brewing space, the
beer maker has sustained the position of both the pioneer and largest brewing
company in the country. A subsidiary of Heineken N.V, one of the top four
Brewing giants in the world. Hence, Heineken’s stake in NB is strategic to its
business priorities of capturing opportunities in Africa and its growth drive into
emerging economies (EMs) with a 55% beer volume in EMs vs. 45% in
developed markets.
Heineken strategy in emerging market is captured in its 8 cardinal points of;
investing to build strong brand, optimizing route to the market, build strong
local brand, investing ahead of the curve, build international premium segment,
engage with government, ‘brewing a better future’, and exploring new market
opportunity.
Given the investment of Heineken Global in NB (54%) and a total installed
brewing capacity of 15.4mhl/pa, NB sustained dominance in the Nigerian beer
market in terms of market value and brewing plants. Heineken has further
indicated its intention to merge the operations of Nigerian Breweries Plc and
Consolidated Breweries Plc (Another subsidiary of Heineken in Nigeria). This
merger is expected to bring to total install capacity of NB to 19.1mhl and total
market share to 71%. Both entities will exist as Nigerian Breweries Plc. post the
merger.
Currently, the premium brewer operates with 10 brewing and malting plants
(Kakuri brewery, Kudenda brewery and Kudenda malting plant in the Northern
part of Nigeria, Lagos, Ota and Ibadan Breweries in the south-western part of
Nigeria, Onitsha, Aba and Ama breweries and malting plants in south east
Nigeria) to retain 61% market share.
Exhibit 26: Geographical Spread of NB’s Brewing and Malting Plants Shareholding Structure
Source: Company fillings
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In terms of market capitalization and holding structure, NB is one of the top
most capitalized stocks listed on the NSE with a total of NGN1.16trillion,
representing 9.30% of total market capitalization. The shareholding structure of
NB has Heineken with 54% majority holding, Stanbic Nominees as the second
largest shareholder with 32% while other holders share the remaining 14%.
By product portfolio, the company operates a broad base product portfolio
across all the segments of the market from international premium (IPS),
national premium (NPS) to mainstream and savings segment. In the IPS
segment, Heineken lager sells at NGN260, Gulder lager beer sells at NGN210 in
the NPS segment, while Star lager (NGN200), Legend extra stout (NGN200) and
Maltina-non-alcoholic malt drink (NGN100/120) sell within the mainstream
segment. Others include Amstel malta, Goldenberg, Malta gold, Climax and
Fayrouz. The most recent innovation to the portfolio is the introduction of Star
Lite Ice Cold Filtered lager, an extension line of Star lager. “The temperature
sensitive labeled beer contains no additives and preservatives and is a healthy
offering for all our health conscious consumers”, according to management.
6.2.2 Route to the Market
Route to the market: NB has a fully integrated route to the market that links
production to retail oulets via key partners. This is conducted through direct
sales from 150 key distributors and 2000 wholesalers to 52500 retail outlets
through a channel of 35000 bulk breakers. The company continues to grow
Exhibit 27: Product portfolio
Source: Company fillings
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•NIG.BREWERIES PLC
10 Brewering and Malting Plants
•150 Key Distributors
•2000 Whole Salers
35000 Bulk Breakers
•525000
•Retail Outlets
CUSTOMERS
cooling capacities in its outlets to give its customers increasing optimal
satisfaction. Overall, 23% of the outlets are located in lagos, 31% in South-West,
16% in the South, 10% in the East and 20% across the Northern region. This is
further supported with customer and consumer targeted reality shows for each
of the brands to drive sales across each of the brand portfolios. Notable among
these are, Maltina Dance All, Gulder Ultimate Search, Star Time,Real Deal,
Heineken’s sponsorship of the UEFA Champions League and the most recent
hosting of the UEFA cup in Eko Hotel and Suites here in Lagos to sustain
consumers’ loyalty.
6.2.3 Performance+ Outlook
We note the sustained dominance of Nigerian breweries Plc. in the the Nigerian
market and the impact of the support of Heineken global’s commercial
expertise on the performance of the Nigerian brewering giant. We think the
enhanced route to the market coupled with the company’s continuous
investment in assets, people and brand innovation will continue to uphold
future performance despite the recent softness in consumer discretionary
spending.
Going forward, we see the performance of the company to be driven largely by
the proposed merger with Consolidated Breweries Plc. This is given the fact
that CONSBREW operates in the Value segment of the beer market which is
currently driving growth in the sector.Based on the foregoing, while we await
the updates on the outcome of the merger arrangment, we expect NB to sustain
a topline growth of over 7%, based on a 10.34% five year CAGR growth.
Source: Heineken presentation.
Exhibit 28: Route to the market
37
Nigeria I Brewing Sector Report I July 2014
Equity Research | www.meristemng.com | July 2014
0%
5%
10%
15%
20%
25%
30%
150
170
190
210
230
250
270
290
310
330
350
2009 2010 2011 2012 2013 2014 2015 2016
Mill
ion
s
Turnover Turnover growth
0%
5%
10%
15%
20%
25%
30%
0
10
20
30
40
50
60
70
2009 2010 2011 2012 2013 2014 2015 2016
Mill
ion
s PAT PAT Growth
We think NB will continue to leverage on operational efficiency to improve
earnings growth. Our 5 years projection puts the company’s EBIT margin at
28.24% vs. 25.05% 5 years historical average. PBT and PAT are expected to
expand by 9.82% and 10.18% accordingly.
Exhibit 29: Historical & Forecast Turnover vs. Growth Rate Historical & Forecast PAT vs. Net Margin
Source: Company’s fillings, Meristem research
38
Nigeria I Brewing Sector Report I July 2014
Equity Research | www.meristemng.com | July 2014
Exhibit 30: FINANCIALS and RATIO (Million’NGN)(HISTORICAL+FORECAST
NIGERIAN BREWERIES PLC 2011 2012 2013 2014f 2015f 2016f
Key Headlines FORECAST HORIZON
Turnover 230.12 252.67 268.61 287.42 308.97 331.37
Gross profit 109.76 125.45 136.48 145.86 157.58 169.83
EBITDA 64.67 80.77 90.36 92.86 100.73 110.84
Operating Profit (EBIT) 56.65 63.93 69.17 78.92 85.81 94.92
Profit before Tax 56.37 55.62 62.24 71.77 78.79 87.43
Profit After Tax 38.03 38.04 43.08 49.49 54.69 61.09
Non-current Asset 153.14 196.77 207.47 209.72 224.40 237.93
Total Current Asset 63.24 63.24 63.24 63.24 63.24 63.24
Total Asset 216.37 253.63 252.76 269.87 288.76 308.25
Current Liabilities 72.21 72.21 72.21 72.21 72.21 72.21
Total non-current Liabilities 66.10 66.10 66.10 66.10 66.10 66.10
Total Liability 138.31 138.31 138.31 138.31 138.31 138.31
Net Asset 78.07 93.45 112.36 122.26 133.20 145.41
Cost to Sales Ratio 52.30% 50.35% 49.19% 49.25% 49.00% 48.75%
Gross Profit Margin 47.70% 49.65% 50.81% 50.75% 51.00% 51.25%
OPEX Margin 23.23% 25.14% 25.83% 23.49% 23.43% 22.81%
ROAE 59.30% 44.36% 41.86% 42.19% 42.82% 43.85%
ROAA 22.99% 16.19% 17.01% 18.94% 19.58% 20.46%
Current Ratio (x) 0.88 0.65 0.45 0.63 0.78 1.01
Quick Ratio (x) 0.57 0.55 0.36 0.52 0.53 0.70
Cash ratio (x) 0.30 0.11 0.10 0.11 0.24 0.31
Inventory turnover (x) 4.94 4.88 5.83 5.94 5.41 5.40
Du-Pont Analysis
ROE 48.71% 40.71% 38.34% 40.48% 41.06% 42.01%
Net Margin 16.52% 15.06% 16.04% 17.22% 17.70% 18.43%
Asset Turnover (x) 1.06 1.00 1.06 1.07 1.07 1.08
Leverage (x) 2.77 2.71 2.25 2.21 2.17 2.12
EBITDA Margin 28.10% 31.97% 33.64% 32.31% 32.60% 33.45%
Operating profit (EBIT) margin 24.62% 25.30% 25.75% 27.46% 27.77% 28.64%
Interest burden 1.00 0.87 0.90 0.91 0.92 0.92
Interest Coverage (X) 35.31 7.21 9.24 10.17 11.11 11.46
Tax burden 0.67 0.68 0.69 0.69 0.69 0.70
Interest coverage 35.31 7.21 9.24 10.17 11.11 11.46
Source: Company fillings, Meristem forecasts
39
Nigeria I Brewing Sector Report I July 2014
Equity Research | www.meristemng.com | July 2014
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2007 08 09 10 11 12 13 14
GUINNESS NSEASI
Target Price: NGN199.20
Rating: HOLD
Market Information
NGN USD
Current Price 200 1.29 52wks high 293.6 1.84 52wks low 161 1.07
Mkt Cap 'bn 301.2 1.94 Average Value (mn) 88.25 0.55 Average vol.(mn) 0.346
S/Outstanding (bn) 1.506
Valuation Metrics NGN
Market Price 200.00 2014eEPS
7.88
2014eBVPS
30.57
12-month TP (NGN) 199.2 Capital Gain
-0.40%
Dividend Yield (2014e)
4.30% Total Return expected
3.90%
Ratings HOLD
P/E
28.89x
P/BV 9.21x
Beta
0.72 COE
16.99%
ROE - 5 year avrg. 38.04% ROE - 2013 64.85%
Div. Payout Rate- 5 year avrg. 85.40% Dividend Payout Rate - 2013 88.85%
PRICE TRAJECTORY
Beset by Performance drag
Guinness Nigeria Plc. NSE: GUINNESS; Bloomberg; GUINNESS: NL
Guinness operates as the second largest brewer in the country (after Nigerian
breweries Plc), with operating plants in four sites, (Ogba and Ikeja in Lagos, as well
as Benin and Aba). In the last two years, GUINNESS launched five innovative
products to support its weakening performance (Malta Guinness Low Sugar, Dubic
Extra Lager, SNAPP, Alvaro and the recent Orijin) in a campaign tagged the ‘colourful
world of more’. In order to enhance revenue and profit, the company has invested
NGN52bn to expand its breweries and distribution network. Although we expect
these huge investments to begin to strengthen performance, recent numbers
indicate sustained performance drags.
Dragging Performance depresses Bottom-line: The 9M Earning releases of the
premium brewer shows that revenue tumbled by 11.40% (NGN78.019bn vs.
NGN88.059bn in previous period) yet again. With this, the beer maker has recorded
three quarters of consecutive reduction in revenue (5.41% in 2014:Q1 and 13.34%
in 2014:Q2). Though management attributed this performance drag to sustained
softness in consumer discretionary spending, insecurity in the north and pricing
review, we suspect that keen competition in the Nigerian brewing space may be a
major factor responsible for the slowness in growth of the beer producer. The fact
that Nigerian breweries (GUINNESS’ major competitor) in the sector continues to
sustain top line growth despite the challenges in the industry buttresses this fact.
Slowing Revenue Growth Continues to Pressure Earnings: Despite declining top-
line, the company’s nine month performance indicates that the brewer has
recorded improving cost of sale (NGN41.680bn vs. NGN48.110bn), representing
13.37% decrease in cost of production. This is also in line with the half year result of
the company, with a 15.65% slip in cost of sales. OPEX (NGN26.493bn vs.
NGN26.763bn) and finance charges (NGN2.597bn vs. NGN2.528bn) recorded
12Month marginal changes of -1.01% and 2.71% accordingly.
Shrinking turnover accounts for the major pressure on bottom line: With sustained
decline in revenue, PBT (NGN7.824BN vs. NGN11.234bn) and PAT (NGN5.943bn
vs.7.633) contracted further by 30.36% and 22.14% respectively. While EPS
followed suit with similar margin (22%) decline from NGN5.07 per share in previous
period to NGN3.95 currently.
The counter is rated a ‘Hold’ at current price: We adopted a blend of DDM and
price multiples to estimate the intrinsic value of GUINNESS. On a dividend payout
assumption of 85% based on historical performance, our valuation model suggests a
12 month target price of NGN 199.20, implying an upside of -0.40% to current price
at NGN200. Hence, we recommend a HOLD.
40
Nigeria I Brewing Sector Report I July 2014
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Guinness Oversea
Ltd46%Others
46%
Atlantaf8%
6.3.1 Company Profile
GUINNESS is the second largest brewer in Nigeria. The company started
production in Nigeria following the establishment of the first brewing plant in
Lagos outside the British Isles In 1963. In 1965, Guinness Nigeria was listed on
the Nigerian Stock Exchange. With consistent growth of Guinness Stout and
Harp Lager beer in the Nigerian market, GUINNESS has expanded its brewing
plant from just one in Lagos to a total of four across Lagos (Ogba and Ikeja),
Benin and Aba in Abia state. The Company expanded its brewing capacity in
Benin and Ogba in 2011 to meet the growing demand of its consumers.
GUINNESS is a subsidiary to the Diageo Group (46% stake), the fourth largest
brewer in Africa and a world's leading premium drinks producer with a broad
base portfolio of spirits, beers and wines with popular brands like Johnnie
Walker, Crown Royal, J&B, Windsor, Buchanan's and Bushmills whiskies,
Smirnoff, Ciroc and Ketel One vodkas, Baileys, Captain Morgan, Tanqueray and
Guinness. Guinness Nigeria remains Diageo’s largest market for the sale of the
GUINNESS stout brand.
In terms of market capitalization and holding structure, GUINNESS represents
2.18% of NSE market capitalization with a market cap of NGN 301.2. While 46%
of the shares of the premium brewer is held by its parent company, Guinness
Oversea Ltd; other major stake holders include Atlantaf (8%) and the Nigerian
public (46%).
Exhibit 31: Geographical Spread of GUINNESS Brewing Plants Shareholding Structure
Source: Company fillings
41
Nigeria I Brewing Sector Report I July 2014
Equity Research | www.meristemng.com | July 2014
By installed capacity, GUINNESS holds the position of the second biggest player
in Nigeria with a total installed capacity of 5.5mhl, operated via its four brewing
plants in Lagos, Benin and Aba.
Product portfolio: The company’s products include, Guinness Foreign Extra
Stout, Guinness Extra Smooth, Malta Guinness, and Harp Lager beer. Other
brands include Gordon’s Spark, Smirnoff Ice, Armstrong Dark Ale, Satzenbrau
Pilsner, Top Malt, Harp Lime, and more recently introduced Malta Guinness Low
Sugar. In response to the competition in the industry and the growing
challenges resulting from volume softness and slowing consumption the
company recently launched a number of innovative products to support its
performance (Malta Guinness Low Sugar, Dubic Extra Lager, SNAPP, Alvaro and
Orijin).
6.3.2 Route to the Market
Route to the market: The overall goal of increasing the availability of its brands
in key outlets is the major thrust of the company’s strategy to increase market
share. The company intends to achieve this by increasing its direct coverage by
increasing the number of its sales personnel as well as dedicated teams to drive
distribution, and Increase availability in rural areas. The brewer boasts of over
200 Guinness distribution centers and a plan to continue to increase the
number of distributors. Other initiatives include, improving the efficiency and
effectiveness of distributors, sales force and sales organizations to enhance
turnover. Sufficient distributors’ funding and financing scheme, and new credit
terms are other means the company adopts for working capital management.
Apart from the above, GUINNESS also tries to stay in the sights of consumers
through sponsorship of popular events like the Barclay’s Premier League, FIFA
Source: Company fillings
Exhibit32: Product portfolio
Source: Company’s filings
42
Nigeria I Brewing Sector Report I July 2014
Equity Research | www.meristemng.com | July 2014
Outlet Coverage
•Increased availability of brands & share in key outlets
•Substantially increased direct coverage
•Increase in sales people
•Pilot further increases in Lagos
Rural Distribution
•Increase availability in rural areas
•Over 200 Guinness Distribution Centers
•Substantial rise in number of distributors
•Dedicated teams driving distribution
Off Trade Mgt Increase
•Share in the growing off trade channel
•Dedicated Key Account Structure for modern retail
•Piloting alternative off trade route to consumer
Sales Effectiveness
•Improving the efficiency of distributors sales force
•Improve the efficiency & effectiveness of sales organization
•Sales Academy
Working Capital
•Sufficient distributor funding to support growth ambition
•Distributor financing scheme
•New Credit Terms
World cup and the likes. With this, the company continues to catch the
awareness of its teeming consumers via beer parlours, viewing centers and
other sporting gatherings.
6.3.3 Performance outlook Guinness has invested NGN52bn in the last three years to expand its breweries
and distribution network. Recent (last two years) performance of the company
has not been impressive, owing partly to growing competition, slowing
consumer spending etc. which were noted earlier in this report. However, we
expect huge CAPEX and recent innovative products to strengthen performance
going forward. We also expect election spending to improve discretionary
spending. Based on this background, we anticipate that Guinness will grow top-
line by a modest 5% going forward. This is further supported by the company’s
6.65% historical 5 year revenue CAGR.
Earnings: As stated above, Guinness has invested CAPEX worth NGN52bn in
plant and distribution expansion in the last 3 years. Earnings in this period were
strained by increased finance charges attributable to this investment.
Nevertheless, we expect Guinness to deleverage in the short to medium term, if
this play out as expected, moderating finance cost should begin to impact
positively on earnings going forward. On the back of this, we foresee the
premium brewer growing Net earnings by 9.53% on the average, for the next
5years.
Exhibit 33: Route to the market
Source: Company’s filings
43
Nigeria I Brewing Sector Report I July 2014
Equity Research | www.meristemng.com | July 2014
-10%
0%
10%
20%
30%
105
110
115
120
125
130
2010 11 12 13 14e 15f 16f
Mill
ion
s
Turnover turnover growth
0%
10%
20%
30%
40%
50%
1
3
5
7
9
11
13
15
17
19
2010 11 12 13 14e 15f 16f
Mill
ion
s
Profit After Tax Net Margin
Exhibit 34: FINANCIALS and RATIO (Million’NGN)(HISTORICAL+FORECAST
Source: Company fillings, Meristem research
Exhibit 34: Historical & Forecast Turnover vs. Growth Rate Historical & Forecast PAT vs. Net Margin
GUINNESS NIGERIA PLC 2012 2013 2014e 2015f 2016f 2017f
Key Headlines FORECAST HORIZON
Turnover 116.46 122.46 114.50 118.22 124.14 130.96
Gross profit 55.18 56.08 53.82 56.16 58.96 62.47
EBITDA 31.39 29.16 30.61 30.31 31.65 32.86
Operating Profit (EBIT) 21.90 20.61 21.10 22.16 23.39 24.91
Profit before Tax 20.38 17.01 20.81 23.05 23.58 24.78
Profit After Tax 14.21 11.86 14.15 15.67 16.04 16.85
Non-current Asset 77.23 88.82 85.60 88.17 88.03 91.97
Total Current Asset 28.78 32.24 59.86 61.56 63.13 68.13
Total Asset 106.01 121.06 115.66 118.82 122.91 128.40
Current Liabilities 45.20 51.28 35.57 46.39 52.80 46.88
Total non-current Liabilities 22.20 23.75 31.92 21.92 17.19 26.07
Total Liability 67.40 75.02 67.50 68.31 69.99 72.95
Net Asset 39 46 48 50.51 52.92 55.45
Cost to Sales Ratio 52.62% 54.21% 53.00% 52.50% 52.50% 52.30%
Gross Profit Margin 47.38% 45.79% 47.00% 47.50% 47.50% 47.70%
OPEX Margin 29.22% 29.62% 29.27% 29.45% 29.15% 29.18%
ROAE 36.03% 28.03% 30.05% 31.77% 31.01% 31.10%
ROAA 14.34% 10.45% 11.96% 13.37% 13.27% 13.41%
Current Ratio (x) 0.64 0.63 1.68 1.33 1.20 1.45
Quick Ratio (x) 0.53 0.57 1.21 0.96 0.86 1.06
Cash ratio (x) 0.11 0.06 0.47 0.37 0.34 0.39
Inventory turnover (x) 4.00 5.19 3.32 2.53 2.58 2.61
Du-Pont Analysis
ROE 36.81% 25.77% 29.39% 31.03% 30.30% 30.39%
Net Margin 12.21% 9.69% 12.36% 13.26% 12.92% 12.87%
Asset Turnover (x) 1.10 1.01 0.99 1.00 1.01 1.02
Leverage (x) 2.75 2.63 2.40 2.35 2.32 2.32
EBITDA Margin 26.95% 23.81% 26.73% 25.64% 25.50% 25.09%
Operating profit (EBIT) margin 18.80% 16.83% 18.43% 18.75% 18.85% 19.02%
Interest burden 0.93 0.83 0.99 1.04 1.01 0.99
Interest Coverage (X) 46.98 10.46 5.42 9.96 10.71 11.42
Tax burden 0.70 0.70 0.68 0.68 0.68 0.68
Interest coverage 10.46 5.42 9.96 10.71 11.42 11.89
Source: Company fillings, Meristem forecasts
44
Nigeria I Brewing Sector Report I July 2014
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0.80
0.90
1.00
1.10
1.20
1.30
1.40
Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14
NSEASI INTBREW
Target Price: NGN21.22
Rating: SELL
Valuation Metrics
NGN
Market Price
28.05 2014EPS
0.65
2014BVPS
3.45 Target Price
21.22
Capital Gain
24.4% Dividend Yield (2014)
1.14%
Total Return expected
-23.2%
Ratings SELL
P/E
43.5x
P/BV 8.68x
Beta
0.64
COE
16.77%
ROE - 5 year avg. 21.69% ROE – 2014 18.7%
Div Payout Rate-5 yr avg.
41.1%
Div Payout Rate – 2014 50.0%
Market Information
NGN USD
Current Price 28.05 0.18
52wks high 30.01 0.19
52wks low 18 0.12
Mkt Cap 'bn 92.00 0.57
Average Value (mn) 20.03 0.13
Average vol.(mn) 0.85 S/Outstanding (bn) 3.263
PRICE TRAJECTORY
Riding on SABM’S Strategic Objective
Revenue Growth Pressured by slowing Growth and Competition in the Sector:
INTBEW operate majorly in the value segment of the beer market, with broad
base product portfolio in the south-western part of Nigeria. We attribute recent
impressive performance of the company to its concentration on the value
segment which is currently driving the overall growth in the breweries industry.
INTBREW grew its 2014FY turnover by 6.36% a huge deviation from five year
historical average growth of 103.62%. Performance in the last three quarter saw
a significant increase in its product portfolio which initially included Trophy
Larger beer and Betamalt. Newer products such as Castle milk stout, Castle larger
and Redds as well as other products from SAB Miller brands (Grand malt, La
Voltic Water plus other castle brands) have been introduced. Improved route to
market in our view accounted for the turnover growth recorded in recent times,
however, 6.36% 2014FY turnover growth of the beer maker indicates that the
brewer’s operations is having its share of the slowing growth and keen
competition in the sector.
Going forward we expect the company to leverage on its strength in the value
segment of beer market to sustain positive topline growth, even as it ride on the
strategic relationship with its parent company (SABM) to stay competitive.
Improved Cost Management but Higher Finance Cost, Pressured Earnings:
INTBREW recorded significant improvement in its production cost as 2014FY cost
of sale declined 0.99% (NGN9.591 Vs.NGN9.687 in 2013FY), cost to sales ratio
moderated to 51.86% (vs. 2013FY: 55.71%). When compared to 3-year historical
cost to sales ratio of 62.46%, this suggest impressive improvement. Nevertheless,
INTBREW’s earnings for the year was pressured by an unusual jump in finance
charges which went up by over 5000%, hence earnings before tax settled at
NGN3.925 (vs.NGN3.556 in 2013FY) representing a 10.40% growth. However, the
company’s after tax profit dipped 9.53% due to deferred tax liability of
NGN1.36billion.
Market price runs ahead of fair valuation: We adopt a blend of dividend
discount model (DDM) and relative pricing valuation to arrive at a fair value for
INTBREW. The company has proposed a 32kobo dividend for the year, this
implies a 50% payout and a dividend yield of 1.14%. Valuation put 12 month
target price at NGN21.22, which imply a downside potential of 24.37% compared
to market price. Hence the stock is rated a SELL.
International Breweries Plc. NSE: INTBREW l Bloomberg INTBREW NL
45
Nigeria I Brewing Sector Report I July 2014
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6.4.1 Company Profile
International breweries Plc. is the third largest brewer in Nigeria (by market
capitalization). Following the rejuvenation of the brewing plant in Ilesha, Osun
State after more than 2 decades of zero production and sustained losses,
INTBREW has regained renewed impetus for revenue growth in the last 2
financial years. Incorporated in December 1971, the company commenced
production in 1978 with an installed capacity of 200,000hl/annum. With
increasing demand, INTBREW increased capacity to 500,000hl/annum. However,
in the late 80s as the company’s performance was fraught by deteriorating
fortune. Consequent on this, INTBREW moved to increase share capital in 2008
given a turnaround prospect for a better future. This move has been remarkable
in the transformation, expansion and renewed profitability in the company in
recent time.
From a unit price of 87kobo in 2007 the company’s share price has risen to as
high as NGN30 in January 2014. This overwhelming price performance is
attributable to number factors. The most notable of these factors include the
combination of the Castel and SABMiller businesses in Nigeria and Angola which
caused a takeover of operational management control of Castel’s Nigerian
business, International Breweries (INTBREW), by SABMiller which took place on
the 1st of January 2012, a deal worth over £6bn. SABMiller, the second largest
brewing company in the world by volume, and largest in Africa, has brewing or
beverage interests in 32 African countries. The Global brewing giant entered the
Nigerian market in 2009 with the purchase of a controlling interest in Pabod
Breweries, based in the southern oil hub.
In terms of capacity, INTBREW currently has a total installed brewing capacity of
0.5mhl. By market capitalization, INTBREW is worth NGN79.25bn. This represent
0.65% of the NSE market capitalization which places the company as the third
largest brewer in Nigeria by market Capitalization.
INTBREW operates from Ilesha Osun state south-west Nigeria where the
brewing plant is located. By ownership structure, Brauhaase Intl Mgt GMBH
hold 46% of th company’s shares, L.A. Pro Shares Limited held another 46%
while the remaining 8% is held by the general public.
46
Nigeria I Brewing Sector Report I July 2014
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Brauhaase Intl Mgt GMBH
46%
L.A. Pro Shares Limited
46%
Others8%
SHARE HOLDING STRUCTURE
INTBREW’s product portfolio include Trophy Lager, which is currently a regional
premium with growing popularity among the south-western consumers, Castle
Stout milk, Castle Lager, Grand malt, Beta malt and Voltic water.
6.4.2 Route to the Market
Route to the market… halving the price of beer: INTBREW’s Strategy is based
on SABM’s objective to make beer more affordable to the average African
consumer, which the the global beer maker sees as a medium to boost sales
volumes. SABM believe majority of the alcoholic beverages consumed in Africa
are home-brewed and informally produced and its strategy is to lure consumers
into the formal beer market. The company believes that as incomes rises,
consumers will move onto higher priced brands.
Exhibit 36: Product Portfolio
Source: Company’s filings
Exhibit 35:
Source: Company’s filings
47
Nigeria I Brewing Sector Report I July 2014
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‘Affordable beer’: SABM therefore introduced ‘affordable beer’ as part of its
overall product offering to win the market. To achieve this objective, the
company has a plan that proposes negotiating lower tax rates with
governments, on the agreement of buying grains from local farmers. A proposal
that is believed to play an important role in attracting government support. In
sum, to halve beer prices in Africa (where it is believe that beer is quite
expensive). SABM leverages on win-win propositions; attempts in negotiating
lower tax rates with government and subsequently generating revenue stream
for the government through beer productions; cutting costs and expanding
volume growth with a view to slicing prices by working with a strong group of
farmers who are contracted to produce grains in whatever form for brewing.
We note the impressive growth in INTBREW’s Trophy lager, which continues to
enjoy a lot of popularity among the south-western consumers. We think this
growth and popularity can be attributed to the affordability and the quality of
the beer compared to its substitute in the lower income end of the market.
6.4.3 Performance and outlook
Performance outlook: As stated Earlier, INTBREW operates via a regional route
to the market. Major product portfolio concentrates on the lower end/ value
segment of the market, which currently accounts for overall growth in the
sector. In line with recent performance, the company’s 2014Q3 turnover
jumped by 30.40%. This however translate to a 2014FY growth of 6.36%. We
think the company will continue to maximize its recent success in the regional
market while leveraging on the expectation of a stronger volume growth in the
brewing space going forward. Though we see tighter competition in the lower
end segment where the beer maker currently operate, (given the strategic
proposal of Nigeria Breweries), we believe INTBREW will ride on its affiliations
with SABM to stay competitive. Based on the foregoing, we estimate INTBREW’s
five year growth to average 6.5%, though five year historical CAGR is 98.68%.
Earnings: INTBREW posted PAT growth of 9.08% as of 2013FY result. The
company continued its trend of reporting impressive declines in cost to sales
ratio over the last seven quarters (2014Q3:49.25% vs. 2013Q3: 50.87%, 2014Q2:
50.55% vs. 2013Q2: 52.15% etc), which continues to boost operating profits.
Finance charges meant to service term loan up to 2016 however continue to
pressure Earnings. Nevertheless, we see the beer maker growing profit by 6.68
% in the next 5-year based on the sustained positive outcome of the company’s
turnarround strategy.
48
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-20%
0%
20%
40%
60%
80%
100%
120%
8
13
18
23
2011 12/2013 2014e 2015f 2016f 2017f
Mill
ion
s Turnover Turnover Growth
-1500%
-1000%
-500%
0%
500%
-2
-1
-
1
2
3
4
2011 12/2013 2014e 2015f 2016f 2017f
Mill
ion
s PAT PAT Growth
INTERNATIONAL BREWERIES PLC 2011 12/2013 2014 2015f 2016f 2017f
Key Headlines FORECAST HORIZON
Turnover 9.91 17.39 18.49 19.70 20.88 22.13
Gross profit 3.12 7.70 8.90 9.26 10.02 10.18
EBITDA 0.28 0.92 3.62 5.01 5.06 5.55
Operating Profit (EBIT) 0.72 3.44 5.01 4.66 5.36 5.29
Profit before Tax 0.68 3.73 3.93 4.07 4.53 4.96
Profit After Tax - 1.69 2.51 2.11 2.77 3.08 3.37
Non-current Asset 11.23 16.41 18.80 19.87 9.37 6.40
Total Current Asset 3.05 6.62 5.58 5.93 5.85 6.32
Total Asset 14.29 23.04 24.37 25.58 11.80 7.99
Current Liabilities 10.15 7.85 6.60 7.35 3.58 2.17
Total non-current Liabilities 2.55 5.80 6.50 8.82 3.83 2.56
Total Liability 12.70 13.66 13.10 16.18 7.41 4.72
Net Asset 1.58 9.38 11.27 12.65 14.19 15.88
Cost to Sales Ratio 68.48% 55.71% 51.86% 53.00% 52.00% 54.00%
Gross Profit Margin 31.52% 44.29% 48.14% 47.00% 48.00% 46.00%
OPEX Margin 27.40% 24.65% 21.12% 23.43% 22.41% 22.19%
ROAE -82.21% 45.72% 20.39% 23.14% 22.94% 22.42%
ROAA -12.58% 13.43% 8.88% 11.08% 16.48% 34.09%
Current Ratio (x) 0.30 0.84 0.84 0.81 1.63 2.91
Quick Ratio (x) 0.27 0.71 0.78 0.73 1.46 2.50
Cash ratio (x) 0.03 0.13 0.06 0.08 0.18 0.41
Inventory turnover (x) 4.02 4.75 4.10 4.73 5.02 5.63
Du-Pont Analysis
ROE -106% 27% 19% 21.88% 21.69% 21.23%
Net Margin -17% 14% 11% 14.06% 14.75% 15.24%
Asset Turnover (x) 0.69 0.75 0.76 0.77 1.77 2.77
Leverage (x) 9.02 2.46 2.16 2.02 0.83 0.50
EBITDA Margin 3% 5% 20% 25.44% 24.22% 25.07%
Operating profit (EBIT) margin 7% 20% 27% 23.67% 25.69% 23.91%
Interest burden 94% 108% 78% 87.33% 84.43% 93.73%
Interest Coverage (X) 3.51 10.96 186.40 4.96 6.76 5.71
Tax burden (2.49) 0.67 0.54 0.68 0.68 0.68
Interest coverage 10.96 186.40 4.96 6.76 5.71 11.95
Source: Company’s filings, Meristem research
E
Exhibit 38: FINANCIALS and RATIO (Million’NGN) + FORECAST
Exhibit 37: Historical & Forecast PAT vs. Net Margin
Source: Company’s filings, Meristem research
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6.5 Other Listed Beer Makers
6.5.1 Champion Breweries plc.
Company Profile: Champion Breweries Limited was changed to Champion
Breweries Plc on the 1st of September, 1992 after going through series of name
changes between 1974 (year of incorporation) and 1992. At inception, the Uyo
based beer producer had a total install capacity of 0.15mhl per annum. Given
demand pressures, the capacity of the company was expanded to 0.5mhl and
then to 1mhl. However, the CAPEX for this new capacity hurt the brewer’s
performance in the years between 1990 and 1991 which caused a shut-down of
the company. However, the advent of democracy in Nigeria brought about state
government and private sector partnership which led to the revamping and
rejuvenation of the plant for brewing 100% locally sourced raw materials in
2001. The company currently operates 0.5mhl per annum.
Product Portfolio: Notable amongst the product portfolio includes Champion
Lager and Champ Malta (to be reintroduced into the market). By market
capitalization, the company is worth NGN9.15 which makes the beer maker the
4th most capitalized brewer in the country.
Key Stakeholder: Consolidated Breweries Plc. held 57% equity stake in
Champion Breweries Plc prior to 23rd of August, 2013. This was however
transferred to Raysun Nigeria Limited, a wholly owned subsidiary of Heineken B
V (“Heineken”), in a bid to provide CHAMPION with its financing and
restructuring requirements. According to the management of CONSBREW,
Champion Breweries has recorded losses over the years, and has relied on
financing from Consolidated Breweries in the form of intercompany debt.
Recapitalizing: In line with the above, the company is currently in the process of
recapitalizing by way of NGN12bn right issue to finance its huge financial
obligation and to optimize its operating capacity. This was issued at a significant
discount of NGN1.85 per share compared to a market price of NGN13.79.
Performance: As seen in its 2013FY result, the company grew its revenue by
25.09% (NGN2.233bn from NGN1.78bn). CHAMPION operates with a very high
Cost to Sales margin of 98.84% compared to industry average 53%. Its bottom
line was also pressured by a 67.86% increase in financial charges as highlighted
above, pegging loss for the year at (NGN1.178bn).
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Outlook: We think Heineken’s recent interest in Champion breweries Plc. and
the move to recapitalize the company is a great development. This opinion
arose from the level of expertise with which the global brewer is expected to
put into the operations and management of the company as seen in Nigerian
breweries and Consolidated Breweries Plc. According to the management of the
company, CHAMPION has entered into a long term contract with Nigeria
Breweries Plc. in respect of contract production and this is expected to drive
revenue going forward. We see a significant potential for growth in Champion
Breweries post recapitalization and restructuring.
6.5.2 Jos Int. Breweries Plc.
Company Profile: Jos International Breweries Plc. (JOSBREW) started operations
in 1975 following a three-party investment agreement signed among the
Plateau State government, the Danish firm of A/S Cerekem International Limited
and the Industrialization Fund for Development Countries (IFU). JOSBREW
product portfolio includes Rock lager beer and ‘Malt Royale’. In terms of market
capitalization, the beer maker is currently worth NGN1.44bn at NGN2.58 per
share making the company the 5th biggest player in the sector by market
capitalization.
Performance: JOSBREW has not released earnings results since 2009; NSE X-
compliance report listed the company as one of the audited accounts defaulters
having failed to file its 2010 audited financial statement. In 2013 the company
was bailed out of its debt worth NGN700bn owed to Diamond bank by the
Plateau state government in other to revive the operations of the company.
Share price rallied 900% (NGN0.90 to NGN9.00) in 2013 following this
announcement.
Restructuring: JOSBREW plans to approach the Bank of Industry (BOI) for a loan
credit worth of NGN2bn. According to management, this is to revive the
operations of the firm following its debt settlement.
Outlook: Though we strongly believe that recent move by the management of
the company to bring the operations of the Brewing plant back to full capacity is
commendable, the non-availability of information on the performance of the
company however does not give room for the possibility of a clear
understanding of the prospect of the company.
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6.5.3 Premier Breweries Plc. The Company was incorporated in 1976 and subsequently listed on the floor of
the NSE in 1988. It is located in Onitsha, Anambra State and was incorporated
for the purpose of brewing alcoholic products. The company has in the past,
made various efforts to raise capital base for the purpose of reactivating its
operations to start production, upgrade existing storage facilities and
provide efficient working capital.
6.5.4 Golden Guinea Breweries. Plc
Golden Guinea Breweries Plc was incorporated in September 1962 and
subsequently listed in 1979. Located in Aba, the Company is engaged in the
brewing, bottling and marketing of Golden Guinea lager beer and Eagle Stout, as
well as the production and marketing of Bergedorf premium lager beer and
Bergedorf Malta under a franchise from Holsten Brauerei AG of Hamburg.
According to the Abia State Government, Golden Guinea Brew has a problem
bothering on finance; as a result the company is currently non-operational.
6.6 Non-Quoted Brewer: Consolidated Breweries Plc
Company Profile: Consolidated Breweries Plc (CONSBREW), a subsidiary of
Heineken N.V, the global brewing giant (became a majority shareholder in
2005). CONSBREW is the third largest brewery in Nigeria the beer maker
produces quality brands such as “33” Export Lager Beer, Turbo King Dark Ale,
Williams dark ale, Hi-Malt Non Alcoholic Malt Drink and Maltex (acquired a
majority shareholding in DIL/Maltex Nigeria Plc in 2009) Non Alcoholic Malt
Drink. These brands have wide distribution networks, and have great consumer
following across Nigeria.
Source: Company fillings
Exhibit 37: Brand Portfolio
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Brewing plants: CONSBREW currently operates four different brewing plants.
These include H/office located at Iddo House, Iddo, Lagos; other breweries are
located in Ijebu-Ode in Ogun State, Awo-Omamma in Imo State and Makurdi in
Benue State. We note that the current expansion to Makurdi and Uyo result
from the strategic acquisition of Sona Breweries by the Heineken Global group
in 2010. An acquisition that saw the takeover of the five brewing plants of Sona
breweries in Ota, Kaduna, Onitsha (Nigerian Breweries) and the aforementioned
two for CONSBREW.
Strategic focus: CONSBREW is HEINEKEN’S strategic route into the savings/value
segment of the Nigerian brewing and malting market. This was on the back of
the fact that the global beer maker needs to register its presence among 61% of
the market in the lower end segment which is curently driving growth, who live
on less than USD1 per day and will require to work 2 hours a day to buy a bottle
of beer. The affordability of the product portfolio of CONSBREW is therefore a
key strategic thrust of the operations of the beer maker.
Ownerhip structure and product portfolio: Heineken Group holds 53.5% of the
shares of the company, 10.6% is held by Odutola Holdings, while the remaining
35.9% is held by other shareholders. The brand portfolio of the craftbrewer
include ‘33’ export which takes c.50% of the volume share of the company,
Turbo king, Williams, Hi-malt and Maltex. The overall feature of the portfolio is
their ‘pocket friendly’ price and premium quality.
Performance: The company recorded a five year revenue growth of c.350%
between 2005 and 2012. Turnover expanded 1.15% as at 2013FY while PBT and
PAT declined 58.60% and 55.33% respectively. CONSBREW now functions in 4
entities Vs. 1 in 2009 (DIL/MALTEX,Champion,bbl and consolidated), operates 5
plants, 14 KSU’s and maintains a man power base of 1400 workers.
Outlook: Heineken has filed a proposal to merge the operations of CONSBREW
with that of Nigeria Breweries, with the global company retaining majority
interest in both companies. Both entities are expected to exist as Nigerian
Breweries post the merger. According Heineken, the consolidation is a strategic
initiative to position the global beer maker for full optimization of the
opportunities in the Nigerian brewing space
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Heineken54%
Odutola holdings
11%
Others36%
•CONSBREW
29 Depot
•700 Independent Distributors
5000 Bulk Breakers
•Bars
•Retail outlets
Consumer
.
6.6 Concluding Highlights We think the long-term prospects for growth remain compelling in the
Nigerian beer market.
We are bullish on Nigerian Breweries as we expect the proposed merger
between Nigerian Breweries and Consolidated breweries to reinforce the long-
term potential for huge returns on investment in the company.
Though we are modest on the 12 month performance outlook for GUINNESS,
we believe the beer maker will continue to leverage on innovation to shove up
its slowing top-line performance.
SABM is expected to further expand its presence in Nigeria with an attempt into
the premium segment (Castel may be introduced to raise competition), while
intensifying its competitive presence in the value segment. Consequent on this,
growth outlook for INTBREW remains attractive.
Heineken will evetually consolidate its entire holding into NB given recent
proposed merger. Hence, Champion breweries may be integrated in no distant
time.
Source: Heineken.
Exhibit 38: Shareholding Structure Route to the Market
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Champion Breweries offers the highest potential for returns amongst the small
cap brewers.
We anticipate the possibility of acquisitions of other inoperative listed beer
makers though there are no grounds for this at the moment.
Cassava beer and other spent beer making inputs offer other opportunities for
investors in the beer production value chain.
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APPENDIX 1: NIGERIAN BREWERIES FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)
Balance Sheet
2011 2012 2013 2014 2015 2016
BALANCE SHEET
Non-current Assets
Fixed Assets 98,428,278 142,348,420 153,366,133 154,908,029 165,747,971 176,937,887
Investments (at cost) 150000 150000 150,000 108,196 115,767 123,583
Intangible Asset 54367019 53987573 53563357 54,036,994 57,818,321 60,109,561
Long-term loans receivable
191446 148700 158,884 667,717 714,442 762,675
deferred charges and trademarks
0 132309 235,790 0 0 0
Total Fixed Asset 153,136,743 196,767,002 207,474,164 209,720,936 224,396,501 237,933,705
Stocks and work-in-progress
27,533,033 24,652,723 20,643,153 27,041,436 28,933,705 30,887,067
Debtors 12,692,298 19,929,893 14,212,062 18,454,134 11,082,706 13,443,087
Due from related companies
0 902,910 764,588 3,238,495 3,465,114 3,699,050
Other Assets 0 0 0 0 0 0
Cash at Bank and in hand 21,876,465 9,514,205 9528848 10606072.34 20011035.56 21362013.14
Deposits for imports 1,133,415 1,866,896 136,818 813,541 870,469 929,236
Total Current Asset 63,235,211 56,866,627 45,285,469 60,153,678 64,363,030 70,320,453
TOTAL ASSET 216,371,954 253,633,629 252,759,633 269,874,614 288,759,532 308,254,158
LIABILITIES
Current Liabilities
Trade creditors 0 61,692,692 69,832,649 47,889,259 41,469,964 11,808,970
Other Creditors 47,554,919 0 0 12,685,050 4,832,471 18,539,140
Due to related companies
0 0 0 0 0 0
Taxation -18347122 -17581652 -19159968 -22274775.98 -24099870.53 -26344170.97
Dividend 9453205 22688113.3 34032169.94 39096461.88 43206785.25 48256662.38 Short-term Liabilities 72,207,575 86,834,468 100,295,715 94,875,373 83,003,771 69,527,213
Creditors: amount falling due after 1-yr
0 0 0 0 0 0
Long-term loan 38,000,000 45,000,000 9,000,000 18,742,844 25,405,218 31,449,278
Deferred Tax 21,231,638 22,384,550 21,830,000 16,192,477 17,325,572 18,495,249
Staff Pension / Gratuity 6,866,570 5,966,719 9,274,733 5,397,492 5,775,191 6,165,083
Deferred Income 0 0 0 11912614.23 22976072.65 35374365.69 Total non-current Liabilities
66,098,208 73,351,269 40,104,733 52,245,427 71,482,054 91,483,977
Total Liabilities 138,305,783 160,185,737 140,400,448 147,120,800 154,485,824 161,011,190
Net Assets 78,066,171 93,447,892 112,359,185 122,753,814 134,241,261 147,071,325
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Income Statement
2011 2012 2013 2014F 2015F 2016F
INCOME STATEMENT
Turnover 230,123,215 252,674,213 268,613,518 287,416,464 308,972,699 331,373,220
Cost of sales -120,361,199 -127,222,069 -132,136,476 -141,552,609 -151,396,623 -161,544,445
Gross Profit 109,762,016 125,452,144 136,477,042 145,863,856 157,576,077 169,828,775
Total OPEX -53,459,431 -63,520,376 -69,381,076 -67,516,152 -72,386,239 -75,571,589
Operating Profit (EBIT) 56,647,710 63,932,031 69,171,377 78,922,537 85,807,782 94,919,932
Interest Income
1,329,159
559,842
551,250
603,575
710,637
795,296
Interest Expense -1,604,177 -8,867,507 -7,482,310 -7,760,245 -7,724,317.477
-8,284,330.494
Net Interest Earnings -275,018 -8,307,665 -6,931,060 -7,156,670 -7,013,680.269 -7,489,034.767
Profit before tax
56,372,692.00
55,624,366.00
62,240,317.00
71,765,867.07
78,794,102.22
87,430,897.45
Taxation -18,347,122 -17,581,652 -19,159,968 -22,274,776 -24,099,871 -26,344,171
Profit after taxation
38,025,570.00
38,042,714.00
43,080,349.00
49,491,091.09
54,694,231.69
61,086,726.47
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APPENDIX 2: GUINNESS NIG. PLC FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)
Balance Sheet 2011 2012 2013 2014e 2015f 2016f
BALANCE SHEET
Non-current Assets Fixed Assets 46,098,557 76,293,851 88,112,852 83,714,714 86,238,731 86,034,856
Investments (at cost) 774000 0 0 121,331 124,645 128,933
Intangible Asset 1031280 679792 578771 1,112,226 1,142,603 1,181,915
Long-term loans receivable 675476 0 31,611 648,237 665,942 688,854
deferred charges and trademarks
Total Fixed Asset 48,579,313 77,231,484 88,822,002 85,596,508 88,171,920 88,034,559
Stocks and work-in-progress 17,433,924 13,193,762 12,400,102 24,175,130 24,835,391 25,689,876
Debtors 18,133,997 10,812,267 16,649,278 12,307,644 12,643,785 13,078,806
Due from related companies 0 0 0 0 0 0
Other Assets 0 0 0 6701929.869 6947094.702 6641628.182
Cash at Bank and in hand 8,080,590 4,772,154 3189239 16676499.95 17131961.14 17721402.38
Deposits for imports
Total Current Asset 43,648,511 28,778,183 32,238,619 59,861,204 61,558,232 63,131,713
TOTAL ASSET 92,227,824 106,009,667 121,060,621 115,660,008 118,818,863 122,906,938
LIABILITIES
Current Liabilities Creditors: Amt falling due within 1-yr
0 0 0 0 0 0
Bank Overdraft 0 0 0 3,088,442 3,172,792 3,281,955
Short-term Loans 0 0 0 -11,988,689 -11,887,120 -11,812,895
Trade creditors 26,342,948 31,808,962 34,920,097 32,465,764 33,352,455 34,499,977
Other Creditors 0 8,201,394 12,304,644 5,092,873 13,457,218 18,254,090
Due to related companies 0 0 0 0 0 0
Taxation -8249032 -6168538 -5145149 -
6660536.019 -
7375742.713 -
7545974.691 Dividend 12168135.53 11799404.15 10541217.32 12030593.18 13322435.28 13629916.79 Short-term Liabilities 36,588,640 45,199,537 51,275,097 35,574,325 46,388,353 52,801,464
Creditors: amount falling due after 1-yr
0 0 0 0 0 0
Long-term loan 0 8,513,058 8,796,183 6,939,600 5,940,943 4,916,278
Deferred Tax 10,282,960 10,902,749 11,955,673 16,453,977 7,213,476 5,064,991
Staff Pension / Gratuity 3,739,799 2,782,809 2,994,557 5,218,870 5,361,405 3,687,208
Deferred Income 0 0 0 189236.2287 194404.5649 201093.2368 Total non-current Liabilities
Total Liabilities 51,944,332 67,398,153 75,021,510 67,497,851 68,305,688 69,988,484
Net Assets 40,283,492 38,611,514 46,039,111 48,162,157 50,513,175 52,918,454
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Income Statement
2011 2012 2013 2014e 2015f 2016f
INCOME STATEMENT
Turnover 123,663,125 116,461,882 122,463,538 114,503,408 118,224,769 124,136,007
Cost of sales -68,619,520 -61,278,681 -66,385,104 -60,686,806 -62,068,004 -65,171,404
Gross Profit 55,043,605 55,183,201 56,078,434 53,816,602 56,156,765 58,964,603
Total OPEX -29,315,098 -34,035,655 -36,279,600 -33,517,692 -34,821,828 -36,190,317
Operating Profit (EBIT) 26,538,501 21,895,799 20,614,339 21,100,434 22,162,510 23,394,967
Interest Income
203,315
580,822
201,185
1,832,055
2,955,619
2,234,448
Interest Expense -564,850 -2,093,463 -3,806,649 -2,118,313 -2,068,933.454 -2,048,244.119
Net Interest Earnings -361,535 -1,512,641 -3,605,464 -286,259 886,685.766 186,204.011
Profit on ordinary activities b4 tax
26,176,966.00
20,383,158.00
17,008,875.00
20,814,175.06
23,049,195.98
23,581,170.91
Taxation -8,249,032 -6,168,538 -5,145,149 -6,660,536 -7,375,743 -7,545,975
Profit after taxation (PAT)
17,927,934.00
14,214,620.00
11,863,726.00
14,153,639.04
15,673,453.27
16,035,196.22
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APPENDIX 3: INTERNATIONAL BREWERIES PLC. FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)
Balance Sheet
BALANCE SHEET
Non-current Assets
Fixed Assets 7,323,499 9,662,962 15,496,354 18,677,771 19,696,011 9,200,374
Investments (at cost) 1000 1000 1,000 1,000 1,049 1,049
Intangible Asset 21060 33020 24765 22,444 30,695 25,579
Long-term loans receivable
Deferred charges and trademarks
Total Fixed Asset 10,076,491 11,234,860 16,412,444 18,795,469 19,871,118 9,370,365
Stocks and work-in-progress 1,741,257 1,636,459 2,439,885 2,236,649 2,174,235 2,148,656
Debtors 489,002 1,098,644 3,142,040 2,945,043 3,197,404 3,064,392
Due from related companies 0 0 0 0 0 0
Other Assets 0 0 0 0 0 0
Cash at Bank and in hand 209,283 318,349 1042393 393379 562743.1701 639480.8752
Deposits for imports
Total Current Asset 2,439,542 3,053,452 6,624,318 5,575,071 5,934,383 5,852,529
TOTAL ASSET 12,516,033 14,288,312 23,036,762 24,370,540 25,579,235 11,795,351
LIABILITIES
Current Liabilities Creditors: Amt falling due within 1-yr
Bank Overdraft 658,320 136,149 2,421,689 771,856 1,087,117 501,302
Short-term Loans 0 0 0 0 0 0
Trade creditors 1,672,593 9,971,271 5,327,074 5,297,015 5,627,432 2,712,931
Other Creditors 0 3,178 17,820 79,335 127,896 117,954
Due to related companies 0 0 0 0 0 0
Taxation 0 -2363229 -1228204 -1819998 -1365800.184 -1448993.784
Dividend 0 0 815631.6075 1044008.458 1451162.695 1539555.895
Short-term Liabilities 2,342,470 10,153,591 7,854,517 6,604,447 7,354,030 3,579,889
Creditors: amount falling due after 1-yr
Long-term loan 7,338,030 39,642 3,789,474 3,854,913 3,836,885 1,533,396
Deferred Tax 0 1,167,817 1,749,928 2,322,550 2,015,644 929,474
Staff Pension / Gratuity 257,671 220,614 257,852 318,707 386,246 178,110
Deferred Income 0 0 0 0 2156329.511 994348.1056
Total non-current Liabilities
Total Liabilities 9,999,353 12,704,989 13,656,589 13,100,617 16,176,308 7,412,199
Net Assets 2,516,680 1,583,323 9,380,173 11,269,923 12,721,086 14,260,642
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Income Statement
2011 12/2013 2014 2015f 2016f 2017f
INCOME STATEMENT
Turnover 4,794,000 9,908,167 17,388,632 18,493,907
19,696,011
20,877,772
Cost of sales -3,030,000 -6,785,005 -9,687,402 -9,591,273 -10,241,926 -10,856,441
Gross Profit 1,764,000 3,123,162 7,701,230 8,902,634 9,454,085 10,021,330
Total OPEX -1,494,000 -2,715,302 -4,287,154 -3,905,378 -4,614,775 -4,678,992
Operating Profit (EBIT) 278,928 719,903 3,444,197 5,011,222 4,859,006 5,363,216
Interest Income -
23,669
308,974
41,620
98,480
104,389
Interest Expense -79,431 -65,685 -18,477 -1,009,527 -689,360.383 -939,499.723
Net Interest Earnings -79,431 -42,016 290,497 -967,907 -590,880.329 -835,110.864
Profit on ordinary activities b4 tax
199,497.00
677,887.00
3,734,694.00
3,925,500.00
4,268,125.57
4,528,105.57
Taxation 0 -2,363,229 -1,228,204 -1,819,998 -1,365,800 -1,448,994
Profit after taxation (PAT) 199,497.00
(1,685,342.00)
2,506,490.00
2,105,502.00
2,902,325.39
3,079,111.79
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Analyst’s Certification and Disclaimer
This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the cover of this report. Each
research analyst hereby certifies, with respect to each security or issuer covers in this research that:
(1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or
issuers (the Issuer); and
(2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed by the research analyst(s) in this report. Research analysts’ compensation is determined
based upon activities and services intended to benefit the investor clients of Meristem Securities Limited (the Firm). Like all of the
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from other business units within the Firm.
(3) each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel,
or similar, for the purpose of gathering, synthesizing and interpreting non-material non-public or material public market
information.
As at the date of this report, any ratings, forecasts, estimates, opinions or views herein constitute a judgment, and are not connected
to research analysts’ compensations. In the case of non-currency of the date of this report, the views and contents may not reflect
the research analysts’ current thinking. This document has been produced independently of the Issuer. While all reasonable care
has been taken to ensure that the facts stated herein are accurate and that the ratings, forecasts, estimates, opinions and views
contained herein are fair and reasonable, neither the research analysts, the Issuer, nor any of its directors, officers or employees,
shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness
of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any
use of this document or its contents or otherwise arising in connection therewith.
Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based
upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm
revenues, which include revenues from, among other business units, Investment Banking.
Investment Ratings
Fair Value Estimate
We estimate stock’s fair value by computing a weighted average of projected prices derived from discounted cash flow and relative
valuation methodologies. The choice of relative valuation methodology (ies) usually depends on the firm’s peculiar business model
and what in the opinion of our analyst is considered as a key driver of the stock’s value from a firm specific as well as an industry
perspective. However, we attach the most weight to discounted cash flow valuation methodology.
Ratings Specification
BUY: Fair value of the stock is above the current market price by at least 20 percent
HOLD: Fair value of the stock ranges between -10 percent and 20 percent from the current market price.
SELL: Fair value of the stock is more than 10 percent below the current market price.
Definitions
Price Targets: Price targets reflect in part the analyst’s estimates for the company’s earnings. The achievement of any price target
may be impeded by general market and macroeconomic trends, and by other risks related to the company or market, and may not
occur if the company’s earnings fall short of estimates.
Asset allocation: The recommended weighting for equities, cash and fixed income instrument is based on a number of metrics and
does not relate to a particular size change in one variable.
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Movements in Price Target
Company disclosures
Meristem or the analyst(s) responsible for the coverage may have financial or beneficial interest in securities or related investments
discussed in this report, which could, unintentionally, affect the objectivity of this report. Material interests, which Meristem or the
analyst(s) have with companies or in securities discussed in this report, are disclosed below:
a. The analyst(s) hold(s) personal positions (directly or indirectly) in a class of the common equity securities of the company.
b. The analyst responsible for this report, as indicated on the front page, is a board member, officer or director of the company
c. Meristem beneficially owns 1% or more of the equity securities of the company
d. Meristem has been the lead manager or co-lead manager of any publicly disclosed offer of securities of the company over the
past 12 months.
e. Meristem beneficially holds a major interest in the debt of the company
f. Meristem has received compensation for investment banking activities from the company within the last 12 months
g. Meristem intends to seek, or anticipates receipt of compensation for investment banking services from the company in the next
3 months
h. The content of this research report has been communicated with the company, following which this research has been
materially amended before its distribution
i. The company is a client of the stock broking division of the Meristem group.
j. The company is a client of the investment banking division of the Meristem group.
k. The company is a client/prospective client of other divisions of the Meristem group.
l. The company owns more than 5% of the issued share capital of Meristem
m. Meristem has other financial or other material interest in the company.
Conflict of Interest
Ticker Last Review Date
Price (N)
Previous Target Price(N)
New Target Price (N)
Previous Recommendation
New Recommendation
NB 22/07/2014 177.09 156.11 169.12 “HOLD” “HOLD” GUINNESS 26/02/2014 200 199.2 199.2 “HOLD” “HOLD” INTBREW 23/07/2014 28.05 15.92 21.22 “SELL” “SELL”
Company Disclosure
Nigerian Breweries Plc.
Guinness Nigeria Plc. a
International Breweries Plc.
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It is the policy of Meristem Securities Limited and its subsidiaries and affiliates (Individually and collectively referred to as
“Meristem”) that research analysts may not be involved in activities that suggest that they are representing the interests of
Meristem in a way likely to appear to be inconsistent with providing independent investment research. In addition, research
analysts’ reporting lines are structured so as to avoid any conflict of interests.
For example, research analysts are not subject to the supervision or control of anyone in Meristem’s Investment Banking or Sales
and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the research
analysts’ published research. Therefore, the proprietary interests of those Sales and Trading departments may conflict with your
interests.
Important Disclosure
For U.S. persons only: This research report is a product of Meristem Securities, which is the employer of the research analysts
who has prepared the research report. The research analysts preparing the research report are resident outside the United States
(U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analysts are not subject to supervision
by a U.S. broker-dealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise
comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances
and trading securities held by a research analyst account.
This report is intended for distribution by Mersitem Securities only to "Major Institutional Investors" as defined by Rule 15a-
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Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as
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U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").
Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker
dealer.
Legal entity disclosures
Meristem Securities Limited is a member of The Nigerian Stock Exchange and is authorized and regulated by the Securities and
Exchange Commission to conduct investment banking and financial advisory business in Nigeria. However, the company through
its subsidiaries carries out stock broking, wealth management, trustees and registrars businesses which are regulated by the SEC
and ICMR.
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Contact Information
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Meristem Research can also be accessed on the following platforms: Meristem Research portal: meristem.com.ng/rhub Bloomberg: MERI <GO> Capital IQ: www.capitaliq.com Reuters: www.thomsonreuters.com ISI Emerging Markets: www.securities.com/ch.html?pc=NG FactSet: www.factset.com
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Glossary
Abbreviation Definition Abbreviation Definition
BRICS Brazil, Russia, India, China and South Africa IFC International Finance corporation
BVPS Book Value per Share IFRS International Financial Reporting Standard
C. Close to IMF International Monetary Fund
CAPEX Capital Expenditure IOC International Oil Company
CAGR Compounded Annual Growth Rate IPP Independent Power Producer
CAR Capital Adequacy Ratio LTD Loan to Deposit
CIT Company and other Income Tax M1 Narrow Money
CSD Carbonated Soft Drink M2 Broad Money
CKD Completely Knocked Down M&A Mergers and Acquisition
CNG Compressed Natural Gas MBPD Million barrels per day
COE Cost of Equity MCAP Market Capitalization
COT Commission on Turnover MDRI Market Development and Restructuring Initiative
CPI Consumer Price Index MENAP Middle East, North Africa, Afghanistan and Pakistan
CPO Crude Palm Oil MHL Million Hecto Liters
CRR Cash Reserve Ratio MIC Middle Income Country
DCF Discounted Cash Flow MIRS Minimum Interest Rate on Savings
DDM Dividend Discount Model MMT Million Metric Tonne
DPS Dividend Per Share MMTPA Million Metric Tonne Per Annum
DISCOS Distribution Companies MOU Memorandum of Understanding
D/Y Dividend Yield MPC Monetary Policy Committee
EBIT Earnings before interest and tax MPR Monetary Policy Rate
ECA Excess Crude Account MRQ Most Recent Quarter
EEG ECOWAS Expansion Grant Scheme MSCI Morgan Stanley Capital International
EIA Energy Information Administration MTEF Medium Term Expenditure Framework
EIU Economist Intelligence Unit MYTO Multi-Year Tariff Order
ETLS ECOWAS Trade Liberalization Scheme NAICOM National Insurance Commission
EM-LCI Emerging Markets local currency index NBS Nigeria Bureau of Statistics
EPS Earnings per Share NDA Net Domestic Asset
EU European Union NFA Net Foreign Assets
FDI Foreign Direct Investment NGL Natural Gas Liquids
FEC Federal Executive Council NGN Naira
FED Federal Reserve NGO Non-government organization
FFB Fresh Fruit Bunches NHA Nigeria Hotel Association
FGN Federal Government of Nigeria NIBOR Nigeria Interbank Offer Rate
FIRS Federal Inland Revenue Service NIPP National Integrated Power Project
FMCG Fast Moving Consumer Goods NNPC Nigerian National Petroleum Corporation
FMF Federal Ministry of Finance NPC National Population Commission
FPI Foreign Portfolio Investment NPE Net Premium Earned
FTAN Federation of Tourism Associations NPL Non-Performing Loan
FY Full Year NSE Nigerian Stock Exchange
GBI-EM Global Bond Index Emerging Market NSEBNK Nigerian Stock Exchange Bank
GCI Global Competitiveness Index NTDC Nigerian Tourism Development Corporation
GDP Gross Domestic Product OECD Organization for Economic Cooperation and Development
GDR Global Depository Receipts OPEC Organization of Petroleum Exporting Countries
GE General Electric OPEX Operating Expense
GENCOS Generation Companies OTC Over the Counter
GMP good manufacturing practice PAT Profit After Tax
GPE Gross Premium Earned P/B Price to Book Value
GPW gross premium written P/E Price to Earnings Ratio
H1 First Half PBB Personal and Business Banking
H2 Second Half PBT Profit before tax
HL Hectoliters PIB Petroleum Industry Bill
SABM South African Breweries and Millers PLC/ SABMiller
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Abbreviation Definition Abbreviation Definition
PMI Purchasing Managers’ Indices SKD Semi- Knocked Down
POME Palm Oil Mill Effluent SME Small and Medium Scale Enterprise
PPP Purchasing Power Parity SON Standard Organization of Nigeria
PPT Petroleum Profit Tax SRW Soft Red Winter
Q1 First Quarter SSA Sub-Saharan Africa
Q2 Second Quarter TCN Transmission Company of Nigeria
Q3 Third Quarter TELECOS Telecommunication Companies
Q4 Fourth Quarter TP Target Price
QE Quantitative Easing UNICEF United Nations children Emergency Fund
Q-o-Q Quarter on Quarter UK United Kingdom
RER Real Exchange Rate US United States of America
R&D Research and Development USAID United states Agency for International Development
RDAS Retail Dutch Auction System USD United States Dollars
RIM Residual Income Model VAT Value Added Tax
RIR Real Positive Interest Rate WAMA West Africa Monetary Agency
ROAA Return on Average ASSET WAMZ West Africa Monetary Zone
ROAE Return on Average Equity WDAS Wholesale Dutch Auction system
RTDs Ready-to-Drinks WHO World Health Organisation
ROE Return on Equity YTD Year to Date
SAP Structural Adjusted Program Y-o-Y Year on Year
SHF Shareholders Fund