By Independent Newspaper
Leading Brewers, Nigeria Breweries Plc and Guinness Plc have rivalled each other for decades in the Nigerian market so much so that investors sometimes have a hard time determining which of the stocks to select in their portfolio. Below is an attempt at drilling down to the basics to help investors make their pick
Although the stock price of Nigerian Breweries has been on an upward trend since May there has been little activity around the maker of Star lager beer, equally leading to a mere N7 appreciation in July as the stock price hit N167.01 on August 1.
The slow rise is a reflection of the company’s performance in the last six to twelve months as it has underperformed the market, delivering 20 per cent to investors where the All share Index (ASI) returned 40 per cent in the last six months. Over a long horizon of 12 months, the market gained 30 per cent relative to the stock’s 25 per cent.
Going forward, analysts hold that the situation will be no different as they forecast that the company will underperform the market.
They see the stock price hitting a median target of N115.92, meaning they see the stock as overpriced and a candidate for correction.
The Financial Times, which polls analysts of quoted firms, says that “as of Jul 29, 2017, the consensus forecast amongst 12 polled investment analysts covering Nigerian Breweries Plc advises that the company will underperform the market.
This has been the consensus forecast since the sentiment of investment analysts deteriorated on Oct 13, 2016. The previous consensus forecast advised investors to hold their position in Nigerian Breweries Plc.
“The 12 analysts offering 12 month price targets for Nigerian Breweries Plc have a median target of N115.92, with a high estimate of 179.00 and a low estimate of N98.10.
The median estimate represents a -30.59% decrease from the last price of N167.00”. As of last Friday, the stock added another N14 to the N7 naira gained before August 1, indicating a quicker pace of growth. The question is what has changed?
Well, what changed is that the company announced an improved result for the last half year where although revenues were not so inspiring, bottom line had an appreciable rise.
Guinness has also been having a rough ride, although it was on the gainers table on Wednesday August 2.
Sentiments on the brewers stock had also waned as it underperformed the All Share Index returning 12 percent in the last six months while the ASI delivered 50 percent.
Over a 12 month period, investors have lost 20 percent on their Guinness investments relative to the ASI that has appreciated 35 percent.
As a result, analysts predict that the stock will underperform the market and therefore offer a median target of N61.16, with a high estimate of N83.29 and a low estimate of N50.00. The median estimate represents a -15.06% decrease from the last price of N72.00.
“As of Jul 29, 2017, the consensus forecast amongst 11 polled investment analysts covering Guinness Nigeria Plc, advises that the company will underperform the market. This has been the consensus forecast since the sentiment of investment analysts deteriorated on Jun 09, 2016.
The previous consensus forecast advised investors to hold their position in Guinness Nigeria Plc.
“The 9 analysts offering 12 month price targets for Guinness Nigeria Plc have a median target of N61.16, with a high estimate of N83.29 and a low estimate of N50.00. The median estimate represents a -15.06% decrease from the last price of N72.00”.
Nigerian Breweries grew revenues by 15 per cent to N181billion from N157.4 billion achieved in the equivalent period in 2016 and improved profit by 25 per cent rise to N23.75 billion from N19.1 billion, which also helped improve net profit margin to 13.1 per cent to 12.1 per cent.
The market is still expecting the Guinness Half year results but first quarter revenues sprang 29.1 percent to N89.87 billion from N69.62 billion and but it made losses of N2.56 billion compared to the gains of N864.2 million. The losses were mainly attributed to heavy COGS and finance costs.
The half year results are expected to be much better in that the losses will narrow from their present position. The optimism is mainly because of the refocusing efforts by the brewer to target the low end of the market and a share split to raise N39.7 billion to wipe out liabilities.
According to the company, shareholders can buy five new shares for every 11 held at 58 naira a share, a 17 percent discount on Wednesday’s market price of 69.87 naira.
The company plans to use the money raised to plug the hole caused by debt and thus mute the high interest payments by the company.
Putting Your Money Where Your Mouth Is
If you want a company that makes more money, it should be Nigerian Breweries
Both companies are underperforming the market but Nigerian Breweries is outperforming Guinness
Both companies are going to face a correction, according to analysts but while Nigerian Breweries will lose –59%, Guinness will correct by 15.06 percent
NB trades at PE 42.23 times multiple while Guinness trades at has a negative PE ratio
If an investor is going to make a pick based on the above criteria, holding other factors constant, Nigerian breweries would get the favourable sentiment.