NBL revenue shortfalls won’t irk investors

Namibia Breweries’ revenue decline of 3.0% comes below forecasts of 8.0% due to poor sales volumes in Namibia which were not fully offset by growing South African volumes, PSG Namibia has announced.

“Operating profit increased by 5.8%, exceeding our expectations of 3.9%, which speaks for the containment of operating costs and the improvement of efficiencies within the Group,” says the firm.

Some of the noteworthy areas were large reduction in the loss from the South African associate to N$13.8 million (down from NAD 138.2 million in 1HFY17) compared to   forecasts of N$30 million for financial year 2018 boosted net profits and earnings per share to grow by 150%.

Also, total beer volumes sold to export markets decreased by 1.9% whilst exported carbonated soft drinks increased by 72% while Tanzania experienced good growth, whereas sales in Zambia and Botswana declined.

How will investors react?

“Investors will be pleased with the 150% increase in Net Profit (PSG forecast of 28.6%) and the interim dividend of 46 cps compared to 42 cps 12 months ago, despite the revenue decrease of 3.0% as this points toward greater efficiencies within the Group and also correlates with lackluster economic growth in Namibia.”

“The significant reduction in the loss from the associate compared to previous years bode well for NBL prospects. The Group expect the associate to turn profitable in the next financial year. Our target price has been increased to 3555 cps and we maintain our Sell recommendation,” says the firm. 

Has the company's outlook/guidance changed?

PSG says there is no change in guidance, while NBL continue to focus on diversifying their business, product and brand portfolio in an effort to remain competitive.

“This includes a focus on craft beers, soft drinks and non-alcoholic beverages. Management are very positive on the outlook for the South African associate, Heineken, as inefficiencies are addressed, and market share gained. A positive outlook on Namibian GDP growth in 2018 contributes to management’s expectations of improvements on sale volumes locally as well,” says the firm. 

 Forecast revisions for FY18

PSG Namibia adjusted its forecasts for full year 2018 as follows: 

Full year forecast for revenue growth was 8.0% and the actual growth came in at -3.0% due to lower Namibian volumes.

“We have adjusted our forecast to 2.5% for FY18,” says the firm. 

After high expenditures in 2017, which caused the loss from associate to persist for longer than initially anticipated, there was a turnaround in 1HFY18, says the firm.

“The number came in at only N$13.8 million which bodes very well for management’s expectation of break-even by the end of calendar year 2018. We mentioned this as a possible upside scenario in our FY17 report when we forecasted the FY18 figures.”

“We have revised our original forecast of a loss of N$30 million down to only N$15 million for the financial year end in June 2018,” says PSG. ?