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



€ 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



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).



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



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.


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:



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.




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



€ 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



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.




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




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:



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.



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



Disclaimer

This publication is for general information only and is not intended to be relied upon as a forecast,

research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any

securities or to adopt any investment strategy. The opinions expressed in this article represent the

current, good‐faith views of the author(s) at the time of publication.

The information and opinions contained in this material are derived from proprietary and

nonproprietary sources deemed by GTB Asset Management to be reliable, are not necessarily all‐

inclusive and are not guaranteed as to accuracy, completeness or otherwise. Opinions expressed are

our own unless otherwise stated. GTB Asset Management and its affiliates may trade for their own

accounts, the company may decide to take a long or short position on any securities, and/or may take

the opposite side of public orders.

Past performance is no guarantee of future results. The inclusion of past performance figures is for

illustrative purposes only. There is no guarantee that any forecasts made will come to pass. Reliance

upon information in this material is at the sole discretion of the reader. This is not in any sense a

solicitation or offer of the purchase or sale of securities. Neither GTB Asset Management nor any

officer or employee of GTB Asset Management accepts any liability whatsoever for any direct, indirect

or consequential damages or losses arising from any use of this report or its contents. Investments in

general and, equities, in particular, involve numerous risks, including, among others, market risk,

counterparty default risk and liquidity risk.

The ratings and company profile assessments reflect the opinion of the individual analyst and are

subject to change at any time.

This material has been issued by GTB Asset Management, which is regulated by the Securities and

Exchange Commission. Further information on any security mentioned herein may be obtained by

emailing: [email protected]

Address:

Investment Management & Research

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