International Breweries Q3 2017 43% PAT growth beats analysts’ expectations

Against operating challenges and industry headwinds, International Breweries Plc has proved skeptics wrong with its third quarter result for the period ended December 31, 2016, even as exposure to foreign exchange continues.

The company’s result beats forecast estimates of investments research firms as it posted boosts in sales as well as growth in gross margin and positive net financial cost.

The brewing company’s result further showed that sales grew by 46per cent y/y to N9.2billion. PBT and PAT advanced by 44 percent over a year’s period (year-on-year) and 43 per cent y/y to N2.0 billion and N1.4bn respectively.

The company reported 634bp year-on-year gross margin shrinkage to 48 percent, while 30 per cent increase was recorded in operating expenses.

The gross margin contraction by 48 per cent and 30 per cent boost in operating expenses could, however, not offset the strong year-on-year sales growth of 46 per cent and a -27 per cent y/y decline in net finance charges, resulting to a strong bottom-line.

On a sequential basis, sales grew by 40 percent in Q3, from Q2 (quarter-on-quarter),  a development market analysts attributed to the benefits of the Q3 seasons, hence the December 31 end quarter is historical as one of the strongest quarters for the brewing industry.

Pre-tax and post-tax loss of –N216million was reported by the company in Q2 2017 ended September 30, 2016.

FBNQuest Research post release of result report noted that based on the strength of the result, a market increase in the company’s earnings estimate 2017-2018E will be affected, while its price target will be increased by 10 per cent to N18.00. “We have upgraded our recommendation on the stock from Underperform to Neutral,” the research outfit noted.

Increases to earnings estimates and price target: International Breweries’ Q3 2017 (end-Dec) results were stronger than we expected, mainly due to positive surprises in sales and, to a lesser extent, gross margin and net finance cost.

On a relative basis, International Breweries shares are trading at a 2017E P/E multiple of 16.9x for EPS growth of 4.7 per cent y/y in 2018E. 2017, the brewing company’s shares have shed -12.7 per cent, against the NSE ASI’s -5.3 per cent.

The analysts rating of the company post-release tilted to positive outlook hinging on future robust sales, as average year on year sales growth rate stood at 37.5 percent.

The robust sales attributed to economy beer brands of the company, analysts have projected will continue to dominate the beer market” we expect that the company will continue to benefit from the ongoing product shift in the market.”