August 9, 2019/Cordros Report
Results summary (H1-19): We update our model following the H1-19 results. The company’s performance seemed disappointing, as revenue declined by 1.4% y/y while EPS was also down by 27.8% y/y to NGN1.67. However, reading between the lines, we estimate that the revenue decline was mainly on the back of the higher excise duty expense. Outside of excise, Heineken NV (NB’s parent company) stated there was a pickup in volumes in the period, as premium and mainstream portfolios grew double-digit, and malt volumes grew high-single-digit as well. Higher OPEX (+6.0% y/y), as the company, cracks on with its ‘sell-out’ strategy, and an increase in net finance charges (+24.2%) following a commercial paper issuance in April, dragged earnings and led to the decline in EPS (-27.8% y/y).
Q2-19 Net Revenue Below Estimate But Volume Growth Is Encouraging: The company’s Q2-19 revenue of NGN86.91 billion was below our estimate for the period (-3% variance), following the increase in excise. Looking ahead, Q3 has historically been the weakest quarter for NB, due to seasonality factors, and the full impact of the excise increase will be seen in the next quarter. However, increased volumes, especially in the premium segment, is encouraging and we now do not expect the revenue decline to be as severe as initially forecast. As a result, we revise 2019E revenue slightly higher by 1.2% to NGN320.71 billion.
Estimates and Valuation: Taking into consideration all amendments to our forecasts, we raise our DCF-derived TP to NGN55.31 (previously NGN53.43) while maintaining a ‘HOLD’ rating. On our estimates, the stock is trading on a forward (2019E) EV/EBITDA multiple of 7.0x, below its SSA peer average of 7.6x. We also estimate that it continues to attract a forward P/E premium vs its SSA peers, trading on 2019E P/E of 27.9x, vs a peer average of 19.3x.