May 28, 2018/InvestmentOne Report
Excise Duty to Weigh on Macroeconomic Improvement
We maintain our SELL recommendation on Nigerian Breweries Plc given the 3% downside implied by our N111.8 fair value on the stock. Following the release of its Q1 2018 results, we forecast Nigerian Breweries Plc (NB) FY 2018 P/E multiple at 28.4x, lower than our FY 2018 P/E multiple of 33.0x forecast for Guinness Nigeria Plc (GN) but higher than 26.9x which is the average in the industry. The premium attached to GNâs FY 2018E P/E may be due to the company recovering from a weak base.
We opine that top line performance in the near term may continue to be limited given the potential introduction of the new excise tax in June 2018 as well as the heightened competition in the brewery space as a result of the growing national presence of International Breweries Plc. In addition, while the improving macro environment and downward trend in inflation may be supportive of consumer sentiments, we expect revenue to be driven by value and mainstream brands such as Life, Goldberg, Turbo King and Williams in the near term.
Our N111.80 price target is derived using a discounted cash flow (DCF) model over the 2018-2027 period. We assume that sales growth reaches a terminal value of 12.0% in 2027 while EBIT improves to 22% by 2027 from our 2018 estimates. Our WACC is 15.9%, assuming 13.0% risk free rate, 1.0 beta, 7.1% after tax cost of debt and 5.0% equity risk premium.