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Transcript of Breweries Sector
8/7/2019 Breweries Sector
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€
Wednesday, September 22, 201
The Breweries Industry
The case for investing in the breweries industry in Nigeria is as compelling as that of investing in the country. Nigeria is
the most populous country in Africa and it is home to over 150 million people with an annual population growth rate of
2%‐3%. The demography of the country favours the breweries industry as available data show that the target audience
for alcoholic beverages is in the age group of 18 to 64 years and the country has over 70 million people within this age
bracket. This accounts for over 46% of the country’s population. This figure is expected to increase to over 85 million by
2012. There is probably no other sector that presents such compelling growth potential like the breweries industry,
with per capita consumption in Nigeria below 10 liters per population which is far below what is obtainable in other
African countries.
With a vibrant population of over 150mn people, a growing middle class society and a strong demography has all but
ensured that the breweries industry in Nigeria would continue to enjoy enormous growth and patronage.
The industry has maintained its status as a pioneer in the manufacturing industry in Nigeria led by Nigeria Breweries
Ltd and Guinness Nigeria Plc; the two heavy weight companies that drive the country’s beer market. The other fringe
players in the breweries industry are: Associated Breweries, Champion Breweries, Consolidated Breweries, Sona
Breweries etc, while these fringe players are not national players but they have firm control in their local areas.
Beer production in the country grew by an average of 15% between 2005 and 2010. The industry is further expected to
grow at an average rate of 10% in terms of its turnover for the next four years. Nigeria Breweries Plc owned by the
famous Dutch brewer Heineken controls a market share of over 50% in an industry that generates over N350 billion in
annual turnover.
Company Turnover (N)
Nigeria Breweries 164.2
Guinness Nigeria Plc 89.14
Competition within the sector is expected to get tougher, with the arrival of SAB Miller. SABmiller has had a successful
stinct in East Africa where they championed the production of low cost beer made from locally sourced raw materials
like
cassava.
SABMiller
entered
into
the
Nigerian
brewery
industry
by
the
acquisition
of
Pabod
Breweries
(based
in
the
Delta Region of the country) and Standard Breweries. The company has made commitments to expand its plant output
to 250,000 hectoliters by 2010, a move that would generate stiffer competition within the industry. We note that with
such situation, imminent players in this sector will have to be innovative to survive the competition ahead. This
however does not negate the prospect for growth within the sector.
We are of the firm opinion that the breweries industry in Nigeria still holds remarkable growth potential supported by
strong demographic data, impressive macroeconomic forecast and a low per capita consumption of 10 liters per
population.
The Nigeria Breweries Industry‐ A lion in the desert
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€ Nigerian Breweries Plc
We initiate coverage on Nigerian Breweries with a "HOLD"
recommendation on a 12 month investment horizon. We
believe that the credit squeeze that began in 2008, and
was full blown in 2009 has continued into 2010. We reckon
that as a result of the cash squeeze, it’s getting increasingly
difficult for new distributors to have access to bank credit,
while the old distributors still face a challenge in renewing
their facilities. The security situation and incessant
kidnapping in the Eastern part of the country has ensured
that social events are reduced to the minimum. As a result,
we do not expect a significant rise in the company's
turnover. We estimate Nigerian Breweries turnover to
grow by 9% year on year, and project a PAT of N31.3 billion
for yearend 2010, an 11% marginal increase from last
year's figure. This is regardless of the Q2 2010 PAT of N15
billion which showed a 6% drop from previous year.
Nigerian Breweries is the first and the largest brewing
company in Nigeria. The company began operation in 1946,
and bottled its first STAR Lager beer in 1949. Currently the
company has five operational sites in Nigeria i.e. Lagos,
Aba, Kaduna, Ibadan and Ama in Enugu.
The company has a strong brand portfolio of alcoholic and
non alcoholic drinks that ranges from its flagship Star Lager
beer to other products like Gulder Lager Beer, Heineken,
Maltina, Amstel Malta, Legend and Fayrouz.
Nigerian Breweries has enjoyed a stable and focused
leadership, the current MD/CEO Mr. Nico Vervelde was
previously a Director for Heineken Africa and Middle East
before assuming the new role.
Very recently, the company has embarked on a sustained
marketing drive for Gulder and Fayrouz in a bid to increase
its patronage.
Recommendation: HOLD
Fair Value: NGN53.20
Market Capitalization: NGN544mn
Shares Outstanding: 7,563mn
Bloomberg Quote: NB NL
Reuters Quote: NB
Year‐end: Dec. 31 Source: NSE data, GTB AM Research
Price Statistics
52wk High: NGN76.00
52wk Low: NGN50.00
Year High: NGN76.00
Year Low: NGN53.00
Year‐to‐Date ReturnΨ: 29.39%
Source: NSE data, GTB AM Research. Ψ Return as at time of report
Balance Sheet (N’bn)
2009 2008 % Chg
Total Assets: 106.99 104.40 2.40
Total Liabilities: 60.42 72.18 ‐0.16
Net‐worth: 46.57 32.22 44.50Source: NSE data, GTB AM Research
Profit and Loss Statement (N’bn)
2009 2008 % Chg
Turnover: 164.61 104.40 2.40
PBT: 41.40 37.52 10.34
PAT: 27.91 25.70 8.60Source: NSE data, GTB AM Research
2009 2010e 2011e
EPS (NGN): 17.90 16.80 15.30
DPS (NGN): 3.70 3.90 4.30
P/E ( x ): 1.8 x 3.2 x 3.5 x Source: NSE data, GTB AM Research
Target Price: NGN72.61 Investment Case: Cautious O timism
Com an Descri tion: The Beer Leader
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Operational Climate: Challenging but doable
Nigeria Breweries has continued to retain its position as a market
leader
in
the
breweries
industry
in
Nigeria.
The
Company
has
completed the construction of a new Lagos brew house which is
part of the company's expansion drive. The Lagos brew house now
produces 2.5 hectoliters (approximately 35 million carton units) of
Nigerian Breweries brands. The other brew locations went through
various stages of maintenance, ranging from brewing, packaging,
to logistics all aimed at boosting the installed capacity.
The company recently migrated to a more robust software
application to aid its operations, they moved from ISHA business
software to the more efficient SAP software. This migration will
lead to more efficient organization and reporting of the supply
chain process.
Nigeria Breweries closed 2009 with an operating profit of N41
billion. We forecast a 9.6% increase in its operating profit, hence
we expect that the company will close yearend 2010 with N45.6
billion as operating profit.
As already identified, the first half of the year kicked off at a slow
pace, the company’s Q2 2010 result showed a decline in its PAT by
6% to N15.8 billion. We however maintain that the company still stands a good chance of closing the year with a 11% growth in PAT.
Financials: PAT settles at N27. 9 billion as Turnover
grows by 12%
Nigeria Breweries recorded revenues of N164 billion in yearend
2009 and N88 billion in H1 2010 (a marginal increase of 7% from
previous year). The company’s PBT was up by 10.3% to N41.3
billion in 2009 and the operating profit was N41.6 billion in 2009.
We forecast that by yearend 2010 the company will close with a
PAT of N31.3 billion; an 11.5% increase from previous year figures,
this is commendable considering the operating climate in the
industry. We anticipate that the company’s PBT will grow by
10.5% to settle at N45.78 billion and improvement from the N41.3
billion figure posted in FY 09.
GTB Asset Management Company Research Nigerian Breweries 22nd Sept, 2010
The company closed year end 2009 with
an operating profit of N41 billion. We
forecast a 9.6% increase in its operating
profit; hence we expect that the
company will close 2010 with N45
billion as operating profit.
Nigerian Breweries recorded revenues of
N164 billion in year ‐end 2009 and N88
billion in H1 2010 (a marginal increase of
7% from previous year).
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GTB Asset Management Company Research Nigerian Breweries 22
nd Sept, 2010
(NGN’000) 2008 2009 2010e 2011e 2012e 2013e
Turnover 145,461,762 164,206,848 178,985,464 196,884,011 220,510,092 242,561,101 Cost of Sales (74,561,945) (88,734,440) (87,702,878) (96,473,165) (108,049,945) (118,854,940) Gross Profit 70,899,817 75,472,408 91,282,587 100,410,845 112,460,147 123,706,162 Selling & Distr. Cost (21,542,383) (20,795,333) (27,152,095) (29,867,304) (33,451,381) (36,796,519) Administrative Expenses (6,440,046) (6,364,979) (8,949,273) (9,844,201) (11,025,505) (12,128,055) Depreciation (6,331,785) (6,794,658) (9,665,215) (10,631,737) (11,907,545) (13,098,299) Other Income 192,257 144,896 178,985 196,884 220,510 242,561 Operation Profit 41,662,334 45,694,989 50,264,488 56,296,226 61,925,849 36,777,860
16
17
17
18
18
0
50
100
150
200
250
300
Turnover Net Profit PAT Margin
20
22
24
26
28
30
‐
50 100
150
200
250
300
Turnover Operating Profit OPM
0
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010 2011 2012
EPS (k) DPS (k)
111.75
145.46 164.21
177.34 195.08
216.54 240.36 261.9
2007 2008 2009 2010e 2011e 2012e 2013e 2014
Turnover
0
10
2010e 2011e 2012e 2013e 2014e 2015e
20
30
40
50
60Free Cash Flow (N'bn)
100
4‐Jan‐10 4‐Mar‐10 4‐May‐10 4‐Jul‐10
110
120
130
140NSE NB
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Valuation Summary: Fair value of N55.37; Target
Price N72.61
The current credit squeeze has dampened our revenue forecast for
Nigeria Breweries, hence we forecast a marginal 9% growth in the
company’s turnover, and project that the company would close the
year with a gross turnover of N178 billion.
In arriving at our price estimate for Nigeria Breweries, we used
both the discounted cash flow model and the relative valuation
model to derive the estimated fair value price for Nigeria
Breweries. Our DCF model yielded a price of N53.22, while we
arrived at a price of N68.89 on our relative valuation models.
These models average to a price of N63.67; applying our discount
factor of 15%, we expect a 6% upside potential from its current
price of N68.6 and our expected target price of N72.61.
For our DCF valuation model, we have assumed a discount factor
of 15% and a terminal growth rate of 6%. We have also carried out
a sensitivity analysis to our DCF based model for different
scenarios.
At a current price of N68.6, Nigeria Breweries trades on a trailing
PE of 18 x and a forward PE of 16 x . We expect a forward dividend
yield of 4.9% for FY10 an increase of 2% from its FY09 dividend
yield of 2%.
We are mindful of the current business situation in the country
and do not expect so much change in the EPS when compared to
previous year. We project an EPS of N4.1 in FY 10; an increase from
the N3.7 EPS recorded from previous year.
We expect that Nigeria Breweries would maintain its dividend
payout policy and hereby project a payout ratio of 82% and a
dividend per share of N3.4 in FY 10; this is higher than the N1.8
that the company paid out in FY 09.
GTB Asset Management Company Research Nigerian Breweries 22nd Sept, 2010
Disc.
Factor 11.0% 13.0% 15.0% 17.0% 19.0% 21.0%Growth
Rate
5.0% 74.5 60.5 51.6 45.4 40.7 37.0
5.5% 79.4 63.2 53.4 46.6 41.6 37.7
6.0% 85.2 66.3 55.3 48.0 42.6 38.5
6.5% 92.3 69.9 57.5 49.4 43.7 39.3
7.0% 101.2 74.1 59.9 51.0 44.8 40.1
Our DCF model yielded a price of
N53.22, while we arrived at a price of
N68.89 on our relative valuation
models. These models average to a
price of N63.67.
We expect that Nigeria Breweries
would maintain its dividend payout
policy and hereby project a payout ratio
of 82% and a dividend per share of N3.4
in FY 10.
Sensitivit Anal sis:
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Peer Analysis: Leading the Pack
Nigeria Breweries has often been termed the darling of the Nigeria
stock exchange; it is currently the most capitalized stock at the
exchange and enjoys good sentiment from investors. In
comparison to its peers, Nigeria Breweries PE is trading at a discount to its one year target price. This could be as a result of the
current bearish trend in the market, shares of Guinness Nigeria Plc
on the other hand has maintained a price range of N162– 171
within the last 8 weeks. However we maintain that in a bullish
market, the upside for NB is high considering the sentiment it
enjoys in the market.
Outlook: Prospects Seem Good
We anticipate a recovery in the economy and foresee banks
resume lending operations, this would jostle the sales of alcoholic
beverage which had hitherto slowed on account of credit squeeze
in the system; Nigeria Breweries as an industry leader is poised to
benefit from the increased sales. In addition the company has put
itself in a competitive light with the newly commissioned Lagos
brew, which now has the capacity to produce 2.5 hectoliters.
Our recommendation is to be “neutral” on Nigeria Breweries in a
diversified portfolio of equities; possible deviations from our target
price could arise if the company records outrageous sales in its Q4
earnings. We would however follow up with an update should we spot this trend. All in all we expect Nigeria Breweries to record
revenue growth at a CAGR 10% over FY09‐FY14.
At current market price of N69, NB is at a P/E of 18 x . We have
valued Nigerian Breweries Plc using the DCF and Relative valuation
methodology. Using these methods we have arrived at a target
price of N72.6, indicating a potential upside of 6% from current
market price.
TB Asset Management Company Research Nigerian Breweries 22nd Sept, 2010
Metrics for Year End 2009 NB GUINNESS
45.96% 47.83%Gross Profit Margin
Operating Profit Margin 25.37% 22.22%26.09% 18.33%Return on Assets
Return on Equity 59.93% 42.95%
0.90 1.14Current Ratio
Dividend Payout 49% 139%
N3.70 N9.20EPS
PE 18x 18x
DPS N1.80 N12.80
In comparison to its peers, Nigeria
Breweries is trading at a discount 2.3%
Our recommendation is to be “neutral”
on Nigeria Breweries in a diversified
portfolio of equities
All in all we expect Nigeria Breweries to
record revenue growth at a CAGR 10%
over FY09‐FY14.
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GTB Asset Management Company Research Nigerian Breweries 22nd Sept, 201
2010e 2011e 2012e 2013e 2014e
Balance‐Sheet Forecasts (N’000) 79,899,111 87,889,022 97,556,815 108,288,064 118,033,990 Fixed Assets
180,417 198,459 220,290 244,521 266,528 Investments
128,870 141,756 157,350 174,658 190,377 Long‐term Debtors & Prepayments
25,773,907 28,351,298 31,469,940 34,931,634 38,075,481 Stocks
5,799,129 6,379,042 7,080,737 7,859,618 8,566,983 Debtors & Prepayments
386,609 425,269 472,049 523,975 571,132 Foreign Currencies for Import
16,753,039 18,428,343 20,455,461 22,705,562 24,749,062 Cash & Bank Balance
48,712,684 53,583,952 59,478,187 66,020,788 71,962,659 Current Assets
128,869,534 141,756,488 157,349,701 174,658,169 190,377,404 Total Assets
Taxation 10,309,563 11,340,519 12,587,976 13,972,653 15,230,192
Dividend 6,095,529 6,705,082 7,442,641 8,261,331 9,004,851
Other Current Liabilities 29,639,993 32,603,992 36,190,431 40,171,379 43,786,803
Current Liabilities 46,045,085 50,649,593 56,221,048 62,405,364 68,021,846 Total Assets less Current Liabilities 82,824,450 91,106,895 101,128,653 112,252,805 122,355,557 Deferred Tax Liabilities 16,753,039 18,428,343 20,455,461 22,705,562 24,749,062
Provision for Gratuity 5,154,781 5,670,260 6,293,988 6,986,327 7,615,096
Net Assets 60,916,629 67,008,292 74,379,204 82,560,916 89,991,399 Shareholders’ Funds 60,916,629 67,008,292 74,379,204 82,560,916 89,991,399 Profit and Loss Forecasts (N’000) Turnover 178,985,464 196,884,011 218,541,252 242,580,790 264,413,061
Profit Before Tax 45,784,482 50,362,930 56,406,482 62,047,130 67,631,371
Profit After Tax 31,133,448 34,246,792 38,356,407 42,192,048 45,989,333
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€ GUINNESS NIGERIA PLC
We initiate coverage on Guinness Nigeria Plc and place a
"HOLD" recommendation for a 12 months investment
horizon. In arriving at our recommendation, we estimated
the fair value of Guinness to be N136.5, and a one year
target price of N176.
We project that the company would record a 13% growth
in turnover
year
on
year,
a far
cry
from
the
29%
growth
in
turnover recorded in 2009. We project Guinness Nigeria Plc
turnover to hit over N100 billion by yearend 2010, the
company is in line to record this feat considering its Q3
2010 results where it posted a turnover of N80.5 billion, we
expect the yearend PAT to drop by 2% and settle at N13.8
billion.
At the current price, we recommend shares of Guinness
Nig Plc for investors seeking both capital appreciation and
dividend payment. We expect that the company would
continue its generous dividend policy. The company had
already declared a dividend of N8.25 for the year under
review
Since its first brewery plant was commissioned in Ikeja area
of Lagos in 1962, Guinness Nigeria Plc has entrenched itself
in Nigeria, its has added two other breweries ( Benin City
and Ogba) to its facilities. Its “ Guinness stout” brand has
become famous and its now the benchmark for the the
stout brand. The company's main activities continue to be
in brewing, packaging and marketing of Guinness Foreign
Extra Stout (1962), Guinness Extra Smooth (2005), Malta
Guinness, (1990), Harp Lager Beer (1974), Gordon’s Spark
(2001) and Smirnoff Ice (2006) and Satzenbrau (2006).
Guinness Nigeria, a subsidiary of the prestigious Diageo Plc
of the United Kingdom owns 46% of the Nigerian
Operations while Atalantaf Ltd owns 7.7% of the company.
The rest 46.2% is available as free float.
Target Price: NGN176.89 Investment Case: sli htl O timistic
Recommendation: HOLD
Fair Value: NGN136.52
Market Capitalization: NGN244mn
Shares Outstanding: 1,474mn
Bloomberg Quote: GUINNESS NL
Reuters Quote: GUINNES.LG
Year‐end: JUN. 30 Source: NSE data, GTB AM Research
Price Statistics
52wk High: NGN173.25
52wk Low: NGN123.50
Year High: NGN173.25
Year Low: NGN124.51
Year‐to‐Date ReturnΨ: 34.12%
Source: NSE data, GTB AM Research. Ψ Return as at time of report
Balance Sheet (N’bn)
2009 2008 % Chg
Total Assets: 73.87 74.65 ‐1.04
Total Liabilities: 38.74 39.26 ‐1.32
Com an Descri tion: A Close Substitute Net Assets: 34.27 31.52 8.72Source: NSE data, GTB AM Research
Profit and Loss Statement (N’bn)
2009 2008 % Chg
Turnover: 89.15 69.17 28.88
PBT: 18.99 17.09 11.11
PAT: 13.54 11.86 14.17Source: NSE data, GTB AM Research
2009 2010e 2011e
EPS (NGN): 9.2 8.6 12.7
DPS (NGN): 12.8 8.2 9.5
P/E ( x ): 18 x 20 x 13 x Source: NSE data, GTB AM Research
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GTB Asset Management Company Research Guinness Nigeria Plc 22nd Sept, 2010
Operational Climate: Challenging but doable
It was a difficult year for the company as the impact of the banking
reform
continued
to
take
its
toll
on
the
company’s
distributors,
disposable income also thinned out in the period under review.
The company however responded to the foreseen dip in turnover
by carrying out a trade census validation in a view to gain a better
understanding of the business terrain and ensure a near perfect
execution of its initiatives, this might account for the 25% growth
in turnover as at Q3 2010.
It was a difficult year for the company as
the impact of the banking reform
continued to take its toll on the
company’s distributors.
We reckon that the cost for advertisement and promotional
expense would rise substantially from previous year; this is
because the company has invested in promoting its brand during
the world cup and also sponsored the “power of 9ja promo”. We
expect a ~N10 billion budget for adverts by yearend. We also
expect the operational profit to slide by 3% when compared to
yearend 2009, hence the company will close 2010 with N20.3
billion as operating profit in yearend 2010.
The quality campaign embarked by the company to promote the
market share and distribution of its Harp brand has paid off
significantly as Harp is gradually becoming popular and now a must
stock brand in leading outlets. The Malta Guinness brand is clearly
an industry leader in the malt drink segment of the Nigeria market
The decline witnessed in the bottom line of Guinness Nigeria Plc’s
P&L statement could be attributed to the spiral effect of the
banking sector reform. In addition, the company’s operation cost
inched higher, hence regardless that the company anticipates an
increase in turnover, it would not impact on the bottom line.
We forecast that by yearend 2010 the
company will close the year with a PAT
of N13.83 billion a decline of 2% from
previous year figures.
Financials: Bottom lines struggles as turnover
inches higher
Guinness Nigeria Plc posted its Q3 March 2010 figures, which
showed a 25.4% increase in turnover. However, the decline in PAT
that started in Q1 Sept 09 and Q2 Dec. 09, continued into Q3, with
the company showing a 17% drop in PAT. We forecast that by
yearend June 2010 the company will close with a PAT of N13.83
billion, a decline of 2% from previous year figures. We anticipate
that the company’s PBT will decline by 4% to settle at N19.76
billion. We also expect that after June 2010 year end there will be
a marked improvement in the company’s earnings as credit begins
to trickle to the real sector.
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GTB Asset Management Company Research Guinness Nigeria Plc 22nd Sept, 2010
2008 2009 2010e 2011e 2012e 2013e(NGN’000) Turnover 69,172,852 89,148,207 101,450,660 110,581,219 119,427,716 128,981,934 Cost of Sales (35,611,016) (46,509,596) (52,145,639) (56,396,422) (60,908,135) (65,780,786) Gross Profit 33,561,836 42,638,611 49,305,021 54,184,797 58,519,581 63,201,148 Advert & Promotion (6,163,742) (7,795,558) (9,130,559) (8,735,916) (9,434,790) (10,189,573) Distribution Expenses (5,066,087) (5,966,268) (7,101,546) (7,740,685) (8,359,940) (9,028,735) Administration Expenses (2,163,640) (4,468,882) (8,116,053) (4,124,679) (4,454,654) (4,811,026) Depreciation (3,125,954) (3,565,316) (4,565,280) (4,976,155) (5,374,247) (5,804,187) Exceptional Item (1,242,838) (1,262,767) Operation Profit 15,799,575 19,579,820 20,391,583 28,607,361 30,895,950 33,367,626
10
14
18
22
26
‐
50
100
150
10
15
20
25
30
‐
50
100
150
2007 2008 2009 2010e 2011e 2012e 2013e 2014e
Turnover Operating Profit OPM
2007 2008 2009 2010e 2011e 2012e 2013e 2014e
Turnover Net Profit PAT Margin
0.00
5.00
10.00
15.00
20.00
2009 2010 2011 2012 2013 2014 2015
EPS (k) DPS (k)
62 69
89 100
109 118 127
137
2007 2008 2009 2010e 2011e 2012e 2013e 2014e
Turnover
0
2010e 2011e 2012e 2013e 2014e 2015e
5000000
10000000
15000000
20000000
25000000
30000000Free Cash Flow
100
4‐Jan‐10 4‐Mar‐10 4‐May‐10 4‐Jul‐10
110
120
130
140 NSE Guinness
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GTB Asset Management Company Research Guinness Nigeria Plc 22nd Sept, 2010
Valuation Summary: Target Price of N176 holds 3
% upside potential
We have valued the shares of Guinness Nigeria Plc and arrived at a
one year target price of N176.89, which represent a 3% upside
potential from the current price of N171.
We used both the discounted cash flow model and the relative
valuation model to derive the estimated fair value price of
Guinness Nigeria Plc. Our DCF model yielded a price of N136, while
we arrived at a price of N169 on our relative valuation models.
These models average to a price of N153; applying our discount
factor of 15%, we arrived at a 12 month target price of N176.
For our DCF valuation model we have assumed a discount factor of
15.5% and a terminal growth rate of 6%. We have also carried out a sensitivity analysis to our DCF based model varying the terminal
growth rate as well as the cost of equity.
At a current price of N171, the company trades on a trailing PE of
18 x and a forward PE of 20 x . We expect a forward dividend yield of
6% for FY11 a slight departure from the 5% yield of FY10
We have considered the current credit squeeze in the system and
have factored its effect into our valuation models; as a result our
revenue forecast for the company was slightly dampened. We
anticipate a 13% increase in turnover year on year, our model shows that the company would close the year with a turnover
figure over N100 billion.
Disc.
Factor 11.0% 13.0% 15.0% 17.0% 19.0% 21.0%
Growth
Rate
5.0% 192.59 155.60 132.28 115.92 103.64 93.98
5.5% 205.43 162.78 136.90 119.16 106.05 95.84
6.0% 220.83 170.99 142.03 122.69 108.63 97.82
6.5% 239.65 180.47 147.76 126.55 111.43 99.95
7.0%
263.18 191.52 154.22 130.80 114.45 102.22
Our DCF model yielded a price of N136,
while we arrived at a price of N169 on
our relative valuation models. These
models average to a price of N153.
We do not expect the company to
sustain the 750k dividend they paid last
year, due to the drop in the company’s
EPS from N9.2 recorded last year to
N8.6 anticipated this yearend.
Sensitivity Analysis:
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TB Asset Management Company Research Guinness Nigeria Plc 22nd Sept, 2010
Peer Analysis: A Close Substitute
Guinness Nigeria and Nigeria Breweries are clearly the industry
leaders in the breweries industry in Nigeria. The industry is led by
Heineken owned Nigeria Breweries that controls an estimated
market share of 65%, while Diageo’s Guinness Nigeria follows suit
with a market share of about 25%. The other fringe players in the
industry are: International Brewery, Premier Brewery, Jos Brewery
etc. The large size of our population has made the breweries
industry in Nigeria an attractive destination for multinational
breweries. Nigeria is increasingly becoming important to Diageo, as
the country has overtaken Ireland to become Guinness’s second
largest market after the UK
Outlook: Better days are ahead
We remain bullish on the breweries industry in Nigeria, and reckon
that Guinness is positioned to wrestle market share from Nigeria
Breweries, Its Harp brand that is gradually becoming popular is
poised to enjoy more patronage and increased sales. We anticipate
that Guinness’s Harp will stay on the tail of NB’s Star.
We acknowledge the operational difficulty the company will face
as a result of electricity challenges and the resultant high fuel
costs, in addition keen competition from imported beer will affect
the company’s turnover.
Our recommendation is to be “neutral” on Guinness Nigeria in a
diversified portfolio of equities. At current market price of N171,
Guinness trades at a P/E of 18 x . We have valued the company
using the DCF and Relative valuation methodology. Using these
methods we have arrived at a target price of N176.0, indicating a
potential upside of 3% from current market price.
We expect the company to maintain its generous dividend payout
ratio.
Metrics for Year End 2009 NB GUINNESS
Gross Profit Margin 45.96% 47.83%
Operating Profit Margin 25.37% 22.22%
Return on Assets 26.09% 18.33%
Return on Equity 59.93% 42.95%
Current Ratio 0.90 1.14
Dividend Payout 49% 139%
EPS N3.70 N9.20
DPS N1.80 N12.80
Diageo’s Guinness Nigeria controls a
market share of about 25%
Our recommendation is to be “neutral”
on Guinness Nigeria in a diversified
portfolio of equities.
We expect the company to maintain its
generous dividend payout ratio.
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TB Asset Management Company Research Guinness Nigeria Plc 22nd Sept, 2010
2010e 2011e 2012e 2013e 2014e
Balance‐Sheet Forecasts (N’000) Fixed Assets 38,191,092 40,518,202 43,160,211 45,318,222 46,146,898
Long Term Debtors and prepayments 284,561 301,900 321,586 337,665 343,840
Stocks 15,725,744 16,683,966 17,771,852 18,660,444 19,001,664
Debtors & Prepayments 7,488,449 5,561,322 5,923,951 6,220,148 6,333,888
Deposits for imports 1,497,690 1,588,949 1,692,557 1,777,185 1,809,682
Cash and bank balance 7,488,449 11,917,118 12,694,180 13,328,889 13,572,617
Current Assets 32,200,332 35,751,355 38,082,539 39,986,666 40,717,851
Total Assets 74,884,494 79,447,456 84,627,865 88,859,258 90,484,113 Creditors & Accruals 18,900,846 20,052,538 21,360,073 22,428,077 22,838,190
Taxation 3,819,109 4,051,820 4,316,021 4,531,822 4,614,690
Dividend Payable 801,264 850,088 905,518 950,794 968,180
Bank Overdraft 5,241,915 5,561,322 5,923,951 6,220,148 6,333,888
Current Liabilities 28,763,134 30,515,768 32,505,563 34,130,841 34,754,948
Total Assets less Current Liabilities 3,437,198 5,235,587 5,576,976 5,855,825 5,962,903
Deferred tax liability 8,072,548 8,564,436 9,122,884 9,579,028 9,754,187
Provision for gratuity 3,774,178 4,004,152 4,265,244 4,478,507 4,560,399
Net Assets 34,274,633 36,363,100 38,734,174 40,670,883 41,414,579
Shareholders’ Funds 31,524,701 31,524,702 31,524,703 31,524,704 31,524,705 Profit and Loss Forecasts (N’000) Turnover 101,450,660 110,581,219 119,427,716 128,981,934 139,300,488
Profit Before Tax 19,762,588 27,921,758 30,155,498 32,567,938 35,173,373
Profit After Tax 13,833,812 19,545,230 21,108,849 22,797,557 24,621,361
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