INTERNATIONAL BREWERIES PLC 9M’21 Earnings report -Loss outlook lowered on margin uptick
What shaped the past week? Global:
It was a week of mixed trading across the global as some major markets sustained losses, while others closed in the green. Starting in Asia, investor focus shifted to the latest macroeconomic numbers from the region. Inflation in China came in above analysts’ expectations, rising 1.5% y/y in October, this according to the country’s National Bureau of Statistics. Furthermore, there was a rise in investor optimism, driven by expectations of an easing in lending restrictions to the Chinese property sector amid the ongoing Evergrande situation. The Shanghai Composite rose 1.36%, while the Hang Seng Index rose 1.84% w/w; whereas the South Korean Kospi and Japan Nikkei 225 eased 0.04% and 0.01% respectively w/w. Across Europe, we saw all major markets close higher, with the German Dax, French CAC, and London FTSE-100 rising 0.12%, 0.64%, and 0.55% respectively w/w. The latest corporate earnings and economic data from the U.K, were at the forefront of investor focus this week. According to the U.K. Office for National Statistics, the nation’s GDP rose 1.3% y/y in Q3’21. Additionally, SIEMENS, ARCELORMITTAL, and RWE, reported stronger y/y earnings in Q3’21, which also boosted investor optimism in the region. Finally, in North America, investors took profit across the markets following weeks of significant buy-side action. On the policy front, the Biden Administration is seeking to include a tax break in its $1.75 trillion social spending package. The plan, titled the Build Back Better agenda, would offer over 65% of Americans earning at least $1 million per year an average tax cut of about $16,800. At time of writing, the S&P 500, Dow Jones, and NASADQ had shed 0.77%, 0.86%, and 1.76% respectively w/w.
Domestic Economy:
Recently, the Senate approved a presidential loan request to the tune of $16 billion, €1 billion, and $125 million. With the recently approved loan and pending Sukuk issuances, our debt stock could hit medium-term targets within a short time span and our debt sustainability ratios could deteriorate at a faster pace. While our debtto-GDP sits below peer average of 55%, Nigeria’s debt service-to-revenue remains above its peers amid huge exposure to hydrocarbons and weak revenue mobilization drive. On a positive note, however, funds tailored towards infrastructure could be critical for long term development. In the medium term, the government needs to mobilize and diversify revenue sources to prevent the nation from slipping into a fiscal cliff, especially as the world makes a gradual shift from oil.
Equities:
The ASI closed the week on a positive note, advancing 295bps w/w to settle at 43253.01pts. Delving into sectoral performances, the consumer goods sector was the best performer this week, rising 63bps w/w, due to gains observed in stocks like FLOURMILL (+350bps w/w) and HONYFLOUR (+272bps w/w). Meanwhile, all other sectors posted losses w/w. The Banking sector was the worst performer, losing 131bps w/w to close at 397.98ppts, as losses in names like WEMABNK (-562bps w/w), and ZENITHBANK (-204bps w/w) dragged the sector lower. Also, the Oil & gas sector closed in the red, driven by sell-offs in CONOIL (-565bps w/w). Finally, the Industrial goods sector closed 1bp lower, as losses in JBERGER (80bps w/w) weighed in on the sector.
Fixed Income:
Trading activity across the fixed income space was largely positive this week, with yields declining in all three segments of the market. Starting in the bonds space, buy- side activity at the mid-long end of the market, saw average yields dip 1bp w/w. Similarly, in the NTB space, investors bought tenors across the mid-long end of the curve, as a result yields across the space declined 10bps on average. Finally, in the OMO space players actively sought bargains in the market as a result, yields moderated 40bps w/w
Currency:
The Naira lost N0.44 at the I&E FX Window to close at N414.74.
What will shape markets in the coming week? Equity market:
The market traded mixed this week. However, in comparison to the prior week, turnover improved by 69% due to increased activity in some of the large/mid cap names like MTNN, AIRTEL and FLOURMILL, with overall sentiment still largely bearish. We anticipate this tepid sentiment to persist as there are no major catalysts to spur activity.
Fixed Income:
In the coming session, we expect current healthy liquidity levels to support activity in the NTB and OMO segments, while we foresee a tepid session in the bonds market, as players anticipate the bond auction scheduled for Wednesday.
Currency:
We expect the naira to remain largely stable across the various windows of the currency space as the CBN maintains interventions in the FX market. Focus for the week INTERNATIONAL BREWERIES PLC 9M’21 ReportLoss outlook lowered on margin uptick
In its recently released 9M’21 earnings results, International Breweries PLC reported a 128.4 billion topline figure (34% higher y/y) and a Loss after Tax of N13.5 billion. In Q3, Revenue grew 32% y/y, driven by a mix of volume and price increases. We note that volumes improved on the back of expanded market share and reviving consumer demand, especially as consumers gradually revert to a more normal social life. For the FY’21 period, we expect Revenue to come in at N176.7 billion. Our outlook is driven by the company’s outperformance of our 9M Revenue expectation, an estimated increase in capacity utilization as well as the demand boost typical in the Q4 period.
Favourable pricing lifts margins 6% y/y
Despite the expected impact of inflated importation costs on margins, the company’s gross margin maintained an upward trend in the quarter (+10ppts y/y to 27%) – lifted by price increases, elevating 9M’21 gross margin 6ppts y/y to 22%, with gross profit printing at N28.0 billion for the period. However, EBITDA margin remained unchanged y/y at 8%, owing to a 24% jump in OPEX, as well as an N11.2 billion FX loss charge recognized in Q2’21. With this, the company’s Loss Before Interest and Tax (LBIT) was flat y/y at N15.9 billion. Excluding possible FX losses, we see a potential return to profitability in the near term, especially as margins improve with the implementation of stronger pricing. Furthermore, the company’s focus on its premium segment, influences our FY’21 gross margin outlook of 22%. Also, we expect the growth in margin to outsize OPEX and thus expect LBIT to decline 31% y/y to N16.0 billion.
LAT revised downwards, TP: N6.68
In spite of a 40% reduction in International Breweries’ finance costs to N1.9 billion (9M’20: N3.2 billion), net finance costs only moderated 29% to N1.3 billion (9M’20:
1.8 billion). Nonetheless, Loss Before Tax declined 3% to N17.2 billion. Accounting for a 4% decline in tax credits, Loss After tax grew 21% y/y to N13.2 billion. Overall, we expect net finance costs to maintain current trend and revise our LAT estimate downwards to N13.1 billion, driven by margin growth. Also, we project a target price of N6.68 per share and rate the stock a BUY.