Profit Drops, but NB Plc.’s Result Shows Recovery is Underway
In its 9-month of financial year result, Nigerian Breweries Plc.’s profit after tax went south by 43.5% from ₦12.275 billion to ₦6.940 billion.
Despite this disappointing profit, analysts said the brewer’s third quarter result indicates that strong recovery may be underway.
To maintain its dividend policy, NB announced an interim dividend of 25 kobo per share, which will be paid electronically in December 1, 2020.
But data shows that NB Plc share movement has largely under-performed year to date return in the stock market.
Detail of the unaudited result showed that NB’s net revenue slipped 0.7% from ₦235.659 billion in 9M-2019 to ₦234.039 billion a year after.
Though the company delivered strong earnings recovery in Q3-2020 due to global easing of economic lockdowns.
In Q3, NB Plc net revenue rose about 20% from ₦68.652 billion in Q2 to ₦82.229 billion, the performance which indicate a strong recovery to pre-pandemic level.
So, profit after tax expanded 1,508% from ₦84 million in Q2-2020 to ₦1.35 billion in Q3-2020.
Analysts see this as possible recovery around demand for company’s products, though there was a marginal drop in net revenue in 9M-2020.
Basically, NB Plc has been faced with lower demand as a result of COVID-19 restriction.
In its equity note, CSL Stockbrokers also alluded to removal of covid-19 restrictions on gatherings and re-opening of on-trade channels (clubs, bars etc.) t o have helped the results.
Analysts at CSL Stockbrokers said traditionally Q3 results has always been a weak period for sales for the company.
In its estimate, CSL Stockbrokers said NB Plc annualised 9M-2020 revenue is ahead of its 2020 projection of ₦277.5 billion.
But then, the firm saw cost of sales (adjusted for depreciation) expanded faster than revenue, up 1.6% to ₦125.0 billion from ₦123.1 billion in 9M-2019.
“We note that on a quarter on quarter basis, cost of sales adjusted for depreciation, grew 17.0% quarter on quarter, below Q3 2020 revenue growth”, CSL Stockbrokers stated.
Thus, analysts think NB Plc. is finally enjoying the benefits of weaker commodity prices in the international market despite elevated pressures from the recent spate of naira devaluation.
The investment firm also noted that excise payments per hl is now flat on a year on year basis in Q3 2020.
Consequently, Q3-2020 gross profit grew 23.3% quarter on quarter to ₦37.6 billion from ₦30.5 billion in Q2-2020.
However, 9M-2020 gross profit declined by 3.2% to ₦109 billion from ₦112.6 billion in 9M-2019.
Then, gross margin came lower by 1.2 percentage points year on year to 46.6% but Q32020 gross margin strengthened by 1.3 percentage points.
But the company was able to keep operating expenses under control.
Its operating expenses (adjusted for depreciation) declined 7.7% year on year to ₦58.8 billion in 9M-2020 from ₦63.7 billion in the comparable period.
Analysts said the decline in operating expenses was driven by lower marketing & distribution expenses which has been adjusted for depreciation.
Marketing and distribution expenses was down 10.7% year on year to ₦48.4 billion, which more than offset the 8.9% uptick in administrative expenses as adjusted for depreciation.
As a result, earnings before interest tax depreciation and amortisation (EBITDA) rose 2.7% year on year to ₦50.2 billion in 9M 2020 from ₦48.9bn in 9M 2019.
Meanwhile, EBITDA margin strengthened by 0.7 percentage point to settle at 21.4% in 9M-2020.
But depreciation and amortisation was higher by 15.5% year on year to ₦28.3 billion in 9M-2020 from ₦24.5 billion in 9M-2019.
CSL Stockbrokers stated that this exerted some downward pressure on operating profit.
NB Plc operating profit slowed down 10.2% year on year to ₦21.9 billion in 9M-2020 from ₦24.4 billion in the comparable year.
However, analysts at CSL Stockbrokers said they noted operating profit was up 80.7% quarter on quarter to ₦7.2 billion in Q3-2020.
On the financing side, analysts expressed concern over NB Plc net finance cost that expanded significantly.
This was driven by increased short term debt.
For context, bank overdraft and short term loans surged by 161.6% year on year in 9M-2020 as against 85.1% year on year as at H1-2020
As a result, NB Plc net finance cost rose 44.8% year on year to ₦11.5 billion in 9M-2020 from ₦8.0 billion in the comparable year.
The surge was driven by the 43.4% year on year growth in finance cost to ₦11.7 billion in 9M- 2020 while finance income declined 5.3% to N0.2 billion.
The surge in finance cost was largely driven by interest payments on commercial papers, analysts said.
“We note the company issued commercial papers worth ₦85.8 billion on its balance sheet as at 9M-2020 as against ₦29.6 billion a year earlier”, CSL Stockbrokers stated.
The firm explained that the decline in finance income reflects the depressed yield environment despite strong cash generation in 9M-2020.
Despite higher receivables, NB boasts a healthy cash balance of N53.7 billion buoyed by proceeds from loans and borrowing year as well as earnings pass-through to net operating cash.
Cash balance rose to ₦132.3 billion from 120.1 billion at the beginning of the year. Though NB’s investment in plant and equipment marginally declined 2.7% as at 9M-2020.
CardinalStone said the company may be looking to ramp up capacity in the near term as capital expenditure commitments for property, plant and equipment amounted to ₦60 billion at the end of the quarter.
The result was further impacted by higher effective tax rate which rose 8.1 percentage points to 36.8% year on year in 9M-2020.
This however resulted in an increase in tax expense.
The company’s unaudited financial statement showed that NB Plc tax expense inched up 18.4% to ₦4.0 billion in the period.
As a result, CSL Stockbrokers said the confluence of weaker revenue, high financial leverage, and elevated tax weakened profitability.
Read Also: NB Plc: Equity Analysts Cut Profit Estimate for 2020 By 57%
Earnings per share dropped to ₦0.87 from ₦1.53 per share in 9M-2019 as NB Plc suffered from multiple issues in operating environment in 2020.
Profit Drops, but NB Plc.’s Result Shows Recovery is Underway
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