Nigerian Breweries vs Guiness Nigeria
Transcription
Nigerian Breweries vs Guiness Nigeria
Sector update Equity Research 19 March 2015 Beverages Nigeria Omair Ansari +234 (1) 448-5329 OAnsari@rencap.com Nigerian brewers Cash is king After conducting distribution and channel checks in Nigeria recently, we came away with a more cautious view on volume and pricing growth. With the worsening macro and expected tighter rate environment, we raise our WACC assumptions and compare Guinness Nigeria (GN) with Nigerian Breweries (NB) on their cash positions. As a result, NB is still our preferred play in Nigeria, but we downgrade our rating to HOLD (from Buy) and lower our TP to NGN138/share (from NGN162). We maintain our SELL rating on GN, but lower our TP to NGN99/share (from NGN103). Worsening macro Investors are familiar with Nigeria’s current problems, but with inflation edging upwards and another devaluation on the cards, we believe the operating environment will become even tougher in 2015. Yvonne Mhango, our SSA economist, forecasts core inflation of 13% with real wage growth moving further into negative territory. Beyond core inflation eating into consumers’ disposable income, the Nigeria Labour Congress (NLC) is now contemplating reducing the minimum wage as it believes the level is unsustainable with current oil prices. 3Ds: Devaluation, distribution and debt This year, the lack of pricing power at the brewers will likely hit operating cash-flow, which we think will face pressure on the back of the devaluation. Furthermore, with subdued demand, the credit facilities that the brewers provide to their distributors could lead to a longer cash-conversion cycle. NB’s negative cash-conversion cycle places it in a stronger position than GN. NB also has minimal debt vs GN whose borrowing has increased 3x in 1H FY15 vs FY14. GN to cut dividends We analyse the funding requirements in FY15 for both GN and NB and conclude that GN will have to cut its dividend pay-out ratio or come to the market to raise equity as it faces a funding gap of ~NGN14.3bn, whilst NB has excess cash and will be able to maintain its pay-out ratio, in our view. Olaloye Oyawoye +234 (1) 448-5328 OOyawoye@rencap.com Summary sector ratings and target prices Nigerian Breweries Bloomberg NB NL Target price, NGN 138 Previous TP, NGN 162 Current price, NGN 130 Upside potential 6% Previous rating Buy Rating HOLD Guinness Nigeria Bloomberg Target price, NGN Previous TP, NGN Current price, NGN Upside potential Previous rating Rating GUINNESS NL 99 103 125 -18% Sell SELL The pricing date in this report is as of close 17 March. Source: Bloomberg, Renaissance Capital Figure 1: NB: Summary valuation and financials Dec-YE 2013 2014 2015E* 2016E Net revenue, NGNbn 268,614 266,372 319,136 362,058 EBIT, NGNbn 69,171 66,861 69,007 82,958 Net income, NGNbn 43,080 42,520 50,615 58,152 EPS, NGN 5.70 5.62 6.36 7.31 DPS, NGN 4.50 3.50 4.44 5.10 EV/EBITDA, x 13.54 10.97 10.75 8.97 P/E, x 28.58 23.12 20.44 17.79 Div yield, % 2.76 2.69 3.41 3.92 *combined entity estimates Source: Company data, Renaissance Capital estimates Figure 2: GN: Summary valuation and financials Jun-YE 2013 2014 2015E 2016E Net revenue, NGNbn 122,464 109,202 114,553 135,157 EBIT, NGNbn 20,614 16,123 10,615 14,321 Net income, NGNbn 11,864 9,573 5,951 9,098 EPS, NGN 7.93 6.36 3.95 6.04 DPS, NGN 3.20 3.16 5.14 6.54 EV/EBITDA, x 13.68 8.35 6.78 5.75 P/E, x 31.65 29.73 31.88 20.86 Div yield, % 2.79 1.69 2.51 4.08 Source: Company data, Renaissance Capital estimates Downgrading TPs, but still prefer NB We downgrade NB to HOLD (from Buy) with a lower TP of NGN138/share (previously NGN162), and maintain our SELL rating on GN and lower our TP to NGN99/share (previously NGN103), on the back of higher WACC assumptions. We believe 2015 will be one of the toughest years for the consumer in Nigeria and only those companies with strong balance sheets and cash positions will be able to weather the storm. As a result, NB remains our preferred brewer in Nigeria. Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital. Investment summary Renaissance Capital 19 March 2015 Beverages Consumer continues to struggle We believe that 2015 will be one of the toughest years for Nigeria from a macro standpoint, and even more so for the consumer. Yvonne Mhango, our SSA economist, forecasts core inflation of 13% with real wage growth moving further into negative territory. Beyond core inflation eating into consumers’ disposable income, the NLC is contemplating reducing the minimum wage as it believes the level is unsustainable with current oil prices. The minimum wage stands at NGN18k/month (~$80). Furthermore, after speaking to some public sector employees, we found that wages have not been paid so far this year for many people. Thus, we continue to believe the down-trending by consumers will continue. Figure 3: Nigerian inflation Source: Nigerian National Bureau of Statistics New hurdles We understand that the struggling consumer story is not new in Nigeria; however, after spending time with management and distributors, we believe that further hurdles will be faced this year. Pricing strategy will of course remain a key focus, and unlike in 2009 when the devaluation in the naira was passed onto the consumer, we do not believe this will be possible this time round. We forecast for price-mix gains of 0.2x CPI as a bestcase scenario without sacrificing the already subdued volumes. In addition, distributor credit terms will have to be a key focus. Successful brewers and fast-moving consumer goods (FMCG) companies in Nigeria are only able to achieve efficient and maximum market penetration by providing credit facilities to their key distributors. Average credit terms are between 45-60 days; however, we see a risk of this extending further this year. Thus, the cash-conversion cycle becomes important for 2015 and NB appears to us to be in a stronger position. Figure 4: Cash-conversion cycle, days GN 200 NB 150 100 50 0 -50 -100 -150 2011 2012 2013 2014 2015E 2016E 2017E Source: Company data, Renaissance Capital estimates 2 Renaissance Capital 19 March 2015 Beverages Devaluation in 2009 Although the devaluation in 2009 was passed onto the consumer, we look back to see which company was able to better sustain margins in that environment. We believe NB leads once again. Figure 5: Operating profit margin Figure 6: Net profit margin GN 35% NB 30% NB 20% 25% 20% 15% 15% 10% 10% Source: Company data *Naira devaluation occurred in 4Q08 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 *Naira devaluation occurred in 4Q08 0% 1Q08 5% 5% 0% GN 25% Source: Company data Not a year you want debt Given the likely subdued operating income for 2015, we do not believe there will be any unordinary capex; however, we believe GN will face pressure, given its high debt burden, where borrowings tripled from ~NGN3bn in FY14 to ~NGN10bn in 1H FY15. Thus, looking at interest coverage at GN vs NB, we see that NB is much better placed. Figure 7: GN interest coverage Figure 8: NB interest coverage 73.4x 520.7x 205.1x 26.1x 14.5x 2010 2011 2012 5.3x 3.6x 4.5x 2013 2014 2015E Source: Company data, Renaissance Capital estimates 2010 2011 *In 2016E and 2017E, we project no debt 7.1x 10.0x 12.4x 10.7x 2012 2013 2014 2015E Source: Company data Funding gaps to emerge With these issues on debt, devaluation and distribution we analysed the cash positions at NB and GN along with their expected expenditures based on our estimates. The outcome is clear to us: GN will face a funding gap this year, thus the possibility for its pay-out ratio 3 Renaissance Capital 19 March 2015 Beverages to be cut is high from its average pay-out ratio of 75%. We believe that GN will either need to raise equity to finance its debt obligations or cut dividends substantially. NB, on the other hand, has sufficient cash to meets its obligations and maintain its historic payout ratio of 70%. Figure 9: NB funded gap, NGNmn 36,759 34,037 5,973 150,907 80,801 114147 66,805 35,321 38,816 Interest Income Cash & cash equivalents Cash from operations Cash available Funded gap Total obligation Debt Capex Dividend Other 3,301 Source: Company data, Renaissance Capital estimates Figure 10: GN funding gap, NGNmn 27,097 6,461 4,819 4,442 42,819 14,352 28,287 16,515 10,124 Cash & cash equivalents Cash from operations Other Cash available Funding gap Total obligation Interest Dividends Capex Debt 6,291 Source: Company data, Renaissance Capital estimates Still prefer NB over GN This makes our case even clearer for our preference of NB over GN. However, given the rising rate environment in Nigeria we have raised our risk free rate assumptions to 15% from 13%, thus increasing our WACC for both companies. However, given the higher proportion of debt for GN, our DCF is only slightly affected vs NB. Thus, we downgrade NB to a HOLD (from Buy) with a revised TP of NGN138/share (from NGN162) and maintain a SELL on GN with a TP of NGN99/share (from NGN103). 4 NB summary financials Renaissance Capital 19 March 2015 Beverages Figure 11: NB key ratios Key growth ratios Revenue growth Gross profit growth EBIT growth EBITDA growth Net profit growth Total asset growth unit % % % % % % 2013 6.3% 8.8% 7.1% 9.3% 13.2% -0.3% Proforma 2013 19.7% 19.9% 10.1% -70.6% 15.8% 35.9% 2014 -0.1% -1.6% -4.2% 291.4% 0.5% 1.3% 2015E 5.6% 0.0% 1.2% -1.1% 14.3% 12.1% 2016E 13.4% 16.3% 20.2% 18.4% 14.9% 6.2% 2017E 14.3% 15.7% 17.8% 16.9% 19.7% 8.3% 2018E 15.9% 17.5% 19.8% 18.8% 20.8% 9.4% 2019E 15.3% 17.0% 19.3% 18.3% 20.4% 9.9% Margins Gross profit margin EBIT margin EBITDA margin Net profit margin unit % % % % 2013 50.8% 25.8% 33.8% 16.0% Proforma 2013 49.7% 23.5% 8.1% 14.6% 2014 48.9% 22.6% 31.6% 14.7% 2015E 46.4% 21.6% 29.6% 15.9% 2016E 47.5% 22.9% 30.9% 16.1% 2017E 48.1% 23.6% 31.6% 16.8% 2018E 48.8% 24.4% 32.4% 17.5% 2019E 49.5% 25.3% 33.2% 18.3% Per share ratios EPS EPS growth DPS Dividends pay-out Dividend yield Year-end price Cash per share unit NGN % NGN % % NGN NGN 2013 5.70 13.2% 4.50 79.0% 2.8% 162.8 1.26 Proforma 2013 5.68 12.8% 4.50 79.3% 2.8% 162.8 1.39 2014 5.57 -2.0% 3.46 62.2% 2.7% 130.0 0.72 2015E 6.36 14.3% 4.44 69.8% 3.4% 130.0 4.62 2016E 7.31 14.9% 5.10 69.8% 3.9% 130.0 5.66 2017E 8.75 19.7% 6.11 69.9% 4.7% 130.0 7.80 2018E 10.57 20.8% 7.40 70.1% 5.7% 130.0 10.80 2019E 12.72 20.4% 8.94 70.3% 6.9% 130.0 14.54 Balance sheet ratios RoE RoA Debt/Equity Net debt/EBITDA Working capital/ Sales Capex/ Sales unit % % x x % % 2013 41.9% 17.0% 0.08x 0.00x 11.8% 12.3% Proforma 2013 33.2% 14.7% 0.14x 0.07x NA 13.0% 2014 25.7% 12.8% 0.14x 0.11x 2.6% 11.7% 2015E 26.9% 13.7% 0.09x -0.09x 2.2% 10.7% 2016E 27.3% 14.4% 0.07x -0.14x 0.8% 10.2% 2017E 30.0% 16.1% 0.06x -0.20x 0.8% 9.7% 2018E 32.9% 17.8% 0.05x -0.27x 1.1% 9.3% 2019E 35.8% 19.6% 0.05x -0.34x 0.9% 8.9% Working capital Days of inventory outstanding Days of receivables outstanding Days of payables outstanding Cash conversion cycle unit Days Days Days Days 2013 57 19 193 -117 Proforma 2013 61 33 193 -99 2014 59 33 190 -98 2015E 59 33 194 -101 2016E 60 34 196 -102 2017E 61 35 196 -101 2018E 61 35 197 -101 2019E 62 36 198 -101 Du Pont analysis RoE Net margin Asset turnover Gearing unit % % % % 2013 41.9% 16.0% 106.1% 246.1% Proforma 2013 33.2% 14.6% 101.1% 225.3% 2014 25.7% 14.7% 87.1% 201.7% 2015E 26.9% 15.9% 86.2% 196.9% 2016E 27.3% 16.1% 89.7% 189.5% 2017E 30.0% 16.8% 95.6% 186.5% 2018E 32.9% 17.5% 101.7% 184.7% 2019E 35.8% 18.3% 106.9% 182.8% x x x x 2013 28.6x 11.0x 4.6x 13.5x Proforma 2013 28.7x 7.3x 4.2x 52.3x 2014 23.4x 6.0x 3.4x 11.0x 2015E 20.4x 5.1x 3.2x 10.8x 2016E 17.8x 4.7x 2.9x 9.0x 2017E 14.9x 4.3x 2.5x 7.5x 2018E 12.3x 3.9x 2.2x 6.2x 2019E 10.2x 3.5x 1.9x 5.1x Valuation P/E P/B P/S EV/EBITDA Source: Company data, Bloomberg, Renaissance Capital estimates 5 Renaissance Capital 19 March 2015 Beverages Figure 12: Nigerian Breweries (Post merger): Income statement, NGNmn (unless otherwise indicated) Income statement Dec-YE 2013 Proforma 2013 2014 2015E Revenue 268,614 302,528 302,322 319,136 Change 6.3% 19.7% -0.1% 5.6% Cost of sales (132,136) (152,151) (154,347) (171,214) Gross profit 136,477 150,377 147,975 147,923 Change 8.8% 19.9% -1.6% 0.0% Gross margin 50.8% 49.7% 48.9% 46.4% Operating expenses (67,306) (79,219) (79,773) (78,916) Operating profit 69,171 71,158 68,202 69,007 Change 7.1% 10.1% -4.2% 1.2% Operating margin 25.8% 23.5% 22.6% 21.6% Depreciation & amortisation (21,740) (24,428) (27,409) (25,531) EBITDA 90,912 24,428 95,611 94,538 EBITDA margin 33.8% 8.1% 31.6% 29.6% Interest (paid) received -6,931 -7,486 -2,976 3,301 Transaction cost -1,191 Profit before tax 62,240 63,672 64,036 72,307 Tax rate 30.8% 30.8% 30.8% 30.0% Taxation (19,160) (19,615) (19,739) (21,692) Attributable profit 43,080 44,058 44,296 50,615 Change 13.2% 15.8% 0.5% 14.3% Ave shares in issue (mn) 7,563 7,761 7,960 7,960 EPS (NGN) 5.7 5.7 5.6 6.4 Change 13.2% 12.8% -2.0% 14.3% DPS (NGN) 4.5 4.5 3.5 4.4 Change 50.0% 50.1% -23.2% 28.2% Pay-out ratio 79% 79% 62% 70% 2016E 362,058 13.4% (190,084) 171,974 16.3% 47.5% (89,016) 82,958 20.2% 22.9% (28,949) 111,907 30.9% 116 83,075 30.0% (24,922) 58,152 14.9% 7,960 7.3 14.9% 5.1 14.9% 70% 2017E 413,806 14.3% (214,760) 199,046 15.7% 48.1% (101,299) 97,747 17.8% 23.6% (33,069) 130,815 31.6% 1,713 99,460 30.0% (29,838) 69,622 19.7% 7,960 8.7 19.7% 6.1 19.8% 70% 2018E 479,621 15.9% (245,684) 233,937 17.5% 48.8% (116,865) 117,073 19.8% 24.4% (38,308) 155,380 32.4% 3,079 120,152 30.0% (36,046) 84,106 20.8% 7,960 10.6 20.8% 7.4 21.1% 70% 2019E 552,791 15.3% (279,089) 273,702 17.0% 49.5% (134,028) 139,674 19.3% 25.3% (44,128) 183,802 33.2% 4,988 144,662 30.0% (43,399) 101,263 20.4% 7,960 12.7 20.4% 8.9 20.8% 70% Balance sheet PPE Other non-current assets Total non-current assets Inventories Trade and other receivables Cash and cash equivalents Other current assets Total current assets Total assets Deferred tax Borrowings Other non-current liabilities Total non-current liabilities Trade and other payables Other current liabilities Total current liabilities Total equity Total liabilities and equity 2016E 201,523 100,410 301,933 31,329 33,838 45,044 3,670 113,882 415,815 27,410 14,540 10,717 52,667 102,049 39,377 141,426 221,722 415,815 2017E 208,786 100,410 309,195 35,709 39,612 62,119 3,670 141,110 450,306 27,410 14,540 10,717 52,667 115,556 39,377 154,933 242,706 450,306 2018E 215,153 100,410 315,563 41,152 46,372 85,980 3,670 177,175 492,737 27,410 14,540 10,717 52,667 132,803 39,377 172,179 267,891 492,737 2019E 220,499 100,410 320,908 47,053 54,034 115,743 3,670 220,501 541,409 27,410 14,540 10,717 52,667 151,407 39,377 190,784 297,959 541,409 2013 153,366 54,108 207,474 20,643 14,212 9,529 901 45,285 252,760 21,830 9,000 9,275 40,105 69,833 30,463 100,296 112,359 252,760 Proforma 2013 176,999 100,410 277,409 25,428 27,447 10,758 3,670 67,303 344,712 27,154 23,540 10,277 60,972 80,499 31,123 111,622 172,118 344,712 2014 193,800 98,497 292,297 28,478 16,357 5,700 6,396 56,932 349,229 27,834 24,670 10,736 63,239 83,283 30,743 114,026 171,964 349,229 2015E 193,578 100,410 293,988 27,771 29,193 36,759 3,670 97,393 391,381 27,410 18,697 10,717 56,824 91,016 39,377 130,393 204,165 391,381 Source: Company data, Renaissance Capital estimates Figure 13: Nigerian Breweries: Cash flow statement, NGNmn Dec-YE 2013 Proforma 2013 NOPAT 47,863 Depreciation 21,740 Working capital 31,699 Capex (33,125) Operating FCF 68,177 Interest Dividends Debt Other FCF Cash balance, bop Cash balance, eop 2014 47,742 27,409 7,717 (35,482) 47,385 (2,976) (27,544) 1,130 38,051 56,047 10,758 66,805 2015E 48,305 25,531 6,965 (34,037) 46,764 3,301 (35,321) (5,973) (38,816) (30,046) 66,805 36,759 2016E 58,071 28,949 2,829 (36,894) 52,954 116 (40,595) (4,157) (35) 8,284 36,759 45,044 2017E 68,423 33,069 3,354 (40,331) 64,514 1,713 (48,638) (514) 17,075 45,044 62,119 2018E 81,951 38,308 5,044 (44,675) 80,627 3,079 (58,921) (924) 23,862 62,119 85,980 2019E 139,674 44,128 5,041 (49,474) 139,369 4,988 (71,196) (43,399) 29,763 85,980 115,743 Source: Company data, Renaissance Capital estimates 6 GN summary financials Renaissance Capital 19 March 2015 Beverages Figure 14: GN key ratios Key growth ratios Revenue growth Gross profit growth EBIT growth EBITDA growth Net profit growth Total asset growth unit % % % % % % 2013 -10.8% -8.5% -21.8% -3.1% -19.3% 9.3% 2014 -8.5% -13.7% -22.4% -20.1% -19.5% 9.3% 2015E 4.9% -6.3% -34.2% -35.6% -37.8% -7.8% 2016E 18.0% 22.2% 34.9% 29.2% 52.9% 3.4% 2017E 12.2% 12.7% 18.4% 16.5% 27.3% 5.1% 2018E 14.3% 14.8% 20.2% 18.5% 15.2% 7.3% 2019E 13.7% 14.3% 19.4% 17.8% 20.3% 7.8% Margins Gross profit margin EBIT margin EBITDA margin Net profit margin unit % % % % 2013 45.8% 16.8% 23.1% 9.7% 2014 49.0% 15.2% 19.9% 10.2% 2015E 42.0% 9.3% 14.0% 9.3% 2016E 43.5% 10.6% 15.3% 8.8% 2017E 43.7% 11.2% 15.9% 5.2% 2018E 43.9% 11.8% 16.5% 6.7% 2019E 44.1% 12.4% 17.1% 7.6% Per share ratios EPS EPS growth DPS Dividends pay-out Dividend yield Year-end price Cash per share unit NGN % NGN % % NGN NGN 2013 7.93 -17.7% 7.00 88.3% 2.8% 251.0 58.98 2014 6.36 -19.8% 3.20 50.3% 1.7% 189.0 60.75 2015E 3.95 -37.8% 3.16 80.0% 2.5% 126.0 61.09 2016E 6.04 52.9% 5.14 85.0% 4.1% 126.0 60.50 2017E 7.69 27.3% 6.54 85.0% 5.2% 126.0 62.05 2018E 8.86 15.2% 7.53 85.0% 6.0% 126.0 65.08 2019E 10.66 20.3% 9.06 85.0% 7.2% 126.0 68.54 Balance sheet ratios RoE RoA Debt/ Equity (x) Net debt/EBITDA Working capital/ Sales Capex/ Sales unit % % x x % % 2013 25.6% 14.3% 0.26x -0.11x -2.7% 13.2% 2014 20.5% 7.5% 0.21x 0.39x -8.9% 12.8% 2015E 13.0% 4.5% 0.16x 0.46x 3.6% 5.6% 2016E 20.0% 6.9% 0.10x 0.23x 0.3% 4.5% 2017E 25.2% 8.8% 0.10x 0.21x 0.2% 6.7% 2018E 27.4% 10.2% 0.06x 0.10x 0.3% 7.8% 2019E 31.8% 11.6% 0.06x 0.09x 0.2% 7.8% Working capital Days of inventory outstanding Days of recievables outstanding Days of payables outstanding Cash conversion cycle unit Days Days Days Days 2013 -68 50 -179 160 2014 -85 64 -194 173 2015E -62 54 -167 158 2016E -63 54 -171 163 2017E -62 55 -172 164 2018E -62 55 -173 165 2019E -62 55 -173 166 Du Pont analysis RoE Net margin Asset turnover Gearing unit % % x x 2013 25.8% 9.7% 1.0 2.6 2014 18.8% 8.8% 0.8 2.6 2015E 11.4% 5.2% 0.9 2.3 2016E 17.1% 6.7% 1.1 2.4 2017E 21.0% 7.6% 1.1 2.4 2018E 23.4% 7.7% 1.2 2.5 2019E 27.0% 8.1% 1.3 2.6 2013 31.7x 3.1x 3.1x 13.3x 2014 29.7x 2.6x 2.7x 13.7x 2015E 31.9x 1.5x 1.6x 8.3x 2016E 20.9x 1.4x 1.3x 6.8x 2017E 16.4x 1.3x 1.1x 5.8x 2018E 14.2x 1.2x 1.0x 5.0x 2019E 11.8x 1.1x 0.9x 4.3x Valuation P/E P/B P/S EV/EBITDA Source: Company data, Bloomberg, Renaissance Capital estimates 7 Renaissance Capital 19 March 2015 Beverages Figure 15: Guinness: Income statement, NGNmn (unless otherwise indicated) Income statement Jun-YE 2013 2014 Revenue 122,464 109,202 Change 5.2% -10.8% Cost of sales (66,385) (57,869) Gross profit 56,078 51,333 Change 1.6% -8.5% Gross margin 45.8% 47.0% Operating expenses (35,464) (35,210) Operating profit 20,614 16,123 Change -5.9% -21.8% Operating margin 16.8% 14.8% Depreciation & amortisation 6,123 10,620 EBITDA 28,244 27,368 EBITDA margin 23.1% 25.1% Interest (paid) received -3605 -4442 Profit before tax 17009 11682 Tax rate -30.2% -18.0% Taxation (5,145) Attributable profit 11,864 9,573 Change -16.5% -19.3% Ave shares in issue (mn) 1,496 1,506 EPS (NGN) 7.9 6.4 Change -17.7% -19.8% DPS (NGN) 7.0 3.2 Change -11.4% -54.3% Pay-out ratio 88% 50% 2015E 114,553 4.9% (66,441) 48,112 -6.3% 42.0% (37,498) 10,615 -34.2% 9.3% 5,957 17,621 15.4% -2348 8267 -28.0% (2,315) 5,951 -37.8% 1,506 4.0 -37.8% 3.2 -1.2% 80% 2016E 135,157 18.0% (76,364) 58,794 22.2% 43.5% (44,472) 14,321 34.9% 10.6% 7,028 22,766 16.8% -1427 12894 -29.4% (3,796) 9,098 52.9% 1,506 6.0 52.9% 5.1 62.4% 85% 2017E 151,642 12.2% (85,374) 66,268 12.7% 43.7% (49,311) 16,956 18.4% 11.2% 7,885 26,519 17.5% -1376 15580 -25.6% (3,996) 11,585 27.3% 1,506 7.7 27.3% 6.5 27.3% 85% 2018E 173,285 14.3% (97,213) 76,072 14.8% 43.9% (55,683) 20,389 20.2% 11.8% 9,011 31,416 18.1% -760 19628 -32.0% (6,281) 13,347 15.2% 1,506 8.9 15.2% 7.5 15.2% 85% 2019E 197,096 13.7% (110,177) 86,919 14.3% 44.1% (62,576) 24,344 19.4% 12.4% 10,249 37,000 18.8% -728 23616 -32.0% (7,557) 16,059 20.3% 1,506 10.7 20.3% 9.1 20.3% 85% Balance sheet PPE Other non-current assets Total non-current assets Inventories Trade and other receivables Cash and cash equivalents Other current assets Total current assets Total assets Deferred tax Finance lease obligation Other non-current liabilities Total non-current liabilities Trade and other payables Borrowings Other current liabilities Total current liabilities Total equity Total liabilities and equity 2015E 91,188 805 91,993 11,370 16,834 1,862 30,066 122,058 13,938 5,678 3,029 22,645 30,407 2,484 20,270 53,161 46,252 122,058 2016E 90,298 805 91,102 13,145 20,132 1,862 35,139 126,241 16,445 3,681 3,029 23,155 35,877 1,610 17,983 55,470 47,617 126,241 2017E 92,632 805 93,437 14,596 22,739 1,862 39,197 132,634 18,451 3,541 3,029 25,021 40,252 1,943 16,064 58,259 49,354 132,634 2018E 97,203 805 98,008 16,506 25,985 1,862 44,353 142,361 21,085 2,117 3,029 26,230 45,998 1,161 17,616 64,775 51,356 142,361 2019E 102,403 805 103,208 18,774 29,555 1,862 50,192 153,399 23,982 2,044 3,029 29,055 52,318 1,388 16,874 70,579 53,765 153,399 2013 88,113 709 88,822 12,400 16,649 3,189 32,239 121,061 11,956 8,796 2,995 23,746 32,507 3,000 15,768 51,275 46,039 121,061 2014 90,683 805 91,488 13,469 19,218 6,291 1,862 40,840 132,328 12,559 27,430 3,029 43,018 30,724 3,149 10,376 44,248 45,062 132,328 Source: Company data, Renaissance Capital estimates Figure 16: Guinness: Cash flow statement, NGNmn Jun-YE NOPAT Depreciation Working capital Capex Operating FCF Interest Dividends Debt Other FCF Cash balance, bop Cash balance, eop 2013 (558) 2014 13,214 5,569 (9,749) (13,952) (4,918) (3,605) (10,849) 21,797 (321) 2,102 (558) 1,544 2015E 5,957 4,167 (6,461) 3,663 (4,442) (4,819) (27,097) 11,772 (20,923) 1,544 (14,632) 2016E 9,738 7,028 396 (6,138) 11,025 (2,348) (4,761) (17,503) 4,215 (9,373) (14,632) (9,373) 2017E 11,530 7,885 317 (10,219) 9,513 (1,427) (7,733) (9,180) 3,487 (5,340) (9,373) (5,340) Source: Company data, Renaissance Capital estimates 8 Disclosures appendix Renaissance Capital 19 March 2015 Beverages Analysts certification This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. 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A complete set of disclosure statements associated with the issuers discussed in this Report is available using the ‘Stock Finder’ or ‘Bond Finder’ for individual issuers on the Renaissance Capital Research Portal at: http://research.rencap.com/eng/default.asp Nigerian Breweries Plc RIC: NB.LG Renaissance Capital is either a market maker or on a continuous basis has sold to/bought from customers on a principal basis the securities or related securities of the issuer at prices defined by Renaissance Capital. Guinness Nigeria Plc RIC: GUINNES.LG Renaissance Capital is either a market maker or on a continuous basis has sold to/bought from customers on a principal basis the securities or related securities of the issuer at prices defined by Renaissance Capital Investment ratings Investment ratings may be determined by the following standard ranges: Buy (expected total return of 15% or more); Hold (expected total return of 0-15%); and Sell (expected negative total return). 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Where Renaissance Capital has not expressed a commitment to provide continuous coverage and/or an expectation of total return, to keep you informed, analysts may prepare reports covering significant events or background information without an investment rating (Not Covered). Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the security’s expected performance and risk. Renaissance Capital reserves the right to update or amend its investment ratings in any way and at any time it determines. 9 Renaissance Capital 19 March 2015 Beverages Renaissance Capital equity research distribution of ratings Investment Rating Distribution Renaissance Capital Research Investment Banking Relationships* Renaissance Capital Research Buy Hold Sell Under Review Restricted Cov. in Trans. 123 38% Buy 2 121 38% Hold 1 74 23% Sell 0 3 1% Under Review 0 0 0% Restricted 0 1 0% Cov. in Trans. 0 322 3 *Companies from which RenCap has received compensation within the past 12 months. NR – Not Rated UR – Under Review 67% 33% 0% 0% 0% 0% Guinness Nigeria share price, target price and rating history Jan-15 Last Price Feb-15 Nov-14 Dec-14 Sep-14 Oct-14 Target Price Aug-14 Jun-14 Jul-14 Apr-14 May-14 Jan-14 Restricted Feb-14 Mar-14 Nov-13 Dec-13 Under Review Sep-13 Oct-13 Aug-13 Jun-13 Jul-13 Cov. in Trans. Apr-13 May-13 Jan-13 Feb-13 Mar-13 Not covered Nov-12 Dec-12 Sep-12 Oct-12 Sell Aug-12 Jun-12 Jul-12 Hold Apr-12 May-12 Jan-12 350 300 250 200 150 100 50 0 Feb-12 Mar-12 Buy 100% 80% 60% 40% 20% 0% Source: Bloomberg Nigerian Breweries Plc share price, target price and rating history Jan-15 Last Price Feb-15 Nov-14 Dec-14 Sep-14 Oct-14 Target Price Aug-14 Jun-14 Jul-14 Apr-14 May-14 Jan-14 Restricted Feb-14 Mar-14 Nov-13 Dec-13 Under Review Sep-13 Oct-13 Aug-13 Jun-13 Jul-13 Cov. in Trans. Apr-13 May-13 Jan-13 Feb-13 Mar-13 Not covered Nov-12 Dec-12 Sep-12 Oct-12 Sell Aug-12 Jun-12 Jul-12 Hold Apr-12 May-12 Jan-12 Feb-12 Mar-12 Buy 250 200 150 100 50 0 100% 80% 60% 40% 20% 0% Source: Bloomberg 10 Renaissance Capital research team Head of Research Head of Russian Research Head of Turkish Research Head of Turkish Product Head of SA Research Name Macro Charles Robertson Yvonne Mhango Thabi Leoka Oleg Kouzmin Equity Strategy Daniel Salter David Nangle Vladimir Sklyar Ilgin Erdogan Michael Harris Rey Wium Telephone number +44 (203) +27 (11) +27 (11) +7 (495) 379-7835 750-1488 750-1483 258-7770 x4506 +44 (203) +7 (495) +90 (212) +44 (203) +27 (11) Coverage Global Sub-Saharan Africa South Africa Russia/CIS Michael Harris Charles Robertson +44 (203) +44 (203) +44 (203) 379-7824 379-7982 379-7835 Financials David Nangle Can Demir Armen Gasparyan Omair Ansari Ilan Stermer Adesoji Solanke Ryan Ayache +44 (203) +90 (212) +7 (495) +234 (1) +27 (11) +234 (1) +971 (4) 379-7954 362-3511 783-5673 448-5329 750-1482 448-5300 x5384 401-9558 EMEA Turkey, Greece Russia, CEE CEE South Africa Sub-Saharan Africa MENA Consumer/Retail/Agriculture David Ferguson +7 (495) Robyn Collins +27 (11) Mete Ozbek +90 (212) Zaheer Joosub +27 (11) Nazmiya Ebrahim +27 (11) Kirill Panarin +7 (495) 641-4189 750-1480 362-3505 750-1427 750-1431 258-7770 x4009 Russia/CIS, Africa South Africa Turkey South Africa South Africa Russia/CIS, Africa Utilities Vladimir Sklyar Anastasia Burkhanova +7 (495) +7 (495) 258-7770 x4624 258-7770 x4594 Global Turkey Global Russia/CIS Russia/CIS Renaissance Capital research is available via the following platforms: Renaissance research portal: research.rencap.com Bloomberg: RENA <GO> Capital IQ: www.capitaliq.com 379-7954 258-7770 x4624 362-3530 379-7982 750-1478 DNangle@rencap.com VSklyar@rencap.com IErdogan@rencap.com MHarris2@rencap.com RWium@rencap.com Name Oil and gas Ildar Davletshin Temilade Esho Evgeny Stroinov Telephone number +7 (495) +234 (1) +7 (495) 725-5244 448-5300 x5363 258-7770 x4046 EMEA Sub-Saharan Africa Russia/CIS Metals and mining Johann Pretorius Steven Friedman Vladimir Sklyar Anastasia Burkhanova +27 (11) +27 (11) +7 (495) +7 (495) 750-1450 750-1481 258-7770 x4624 258-7770 x4594 South Africa South Africa Russia/CIS Russia/CIS Diversified/Industrials Ilgin Erdogan Roy Mutooni Oyindamola Olanrewaju +90 (212) +27 (11) +234 (1) 362-3528 750-1469 x 1469 448-5300 x5377 Turkey South Africa Sub-Saharan Africa Telecoms/Transportation Alexander Kazbegi Alexandra Serova Artem Yamschikov +41 (78) +7 (495) +7 (495) 883-4527 258-7770 x4073 258-7770 x7511 Global Russia/CIS Russia/CIS Media/Technology/Real estate David Ferguson +7 (495) Ahmed Motara +27 (11) Seki Mutukwa +44 (203) Kirill Panarin +7 (495) 641-4189 750-1458 379-7736 258-7770 x4009 Russia/CIS, Africa South Africa Sub-Saharan Africa/MENA Russia/CIS, Africa Luxury goods and tobacco/Beverages Rey Wium +27 (11) 750-1478 Global/South Africa Non-financials Digvijay Singh Seki Mutukwa 523-2451 379-7736 MENA Sub-Saharan Africa/MENA +44 (741) +44 (203) Thomson Reuters: thomsonreuters.com/financial Factset: www.factset.com Coverage Renaissance Capital Moscow T + 7 (495) 258 7777 Renaissance Capital Ltd. 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