Breweries expected to ‘keep it real’

‘BUY!’, is Investment House Namibia’s (IHN) strong recommendation after having scrutinised Namibia Breweries’ (NBL) financial performance following the recent release of their interim results for the six-month period to December 31 2008.

‘On balance, the reported results were slightly better than our expectations,’ IHN market analyst JD Van Wyk says in his review, adding that NBL is ‘still a positive story’.
The once blue-chip company is slowly but surely regaining its golden reputation after management embarked on a sobering five-year turnaround strategy in 2005. That NBL is recovering from its hangover, which saw profits plummeting by more than 40 per cent in 2004, is evident from the latest figures.
Total revenue increased by 15 per cent, just below IHN’s full year estimate of 16 per cent. Total beer volumes grew by eight per cent, while earnings before interest, tax, depreciation and amortisation (EBITDA) – a good indicator of a company’s operating cash flow – jumped by 37 per cent.
Other financial highlights include operating profits increasing by 21 per cent to N$115,8 million after accounting for the joint venture loss of N$22 million, with operating margins also improving from 13,3 per cent to 16,8 per cent. Headline earnings per share (HEPS) were up 8,2 per cent from 37 cents per share to 41 cents per share, while the interim dividend of 22 cents per share is 22 per cent higher than the previous one.
Windhoek Lager’s robust performance locally, as well as in South Africa and Angola, ensured the kick in NBL’s top line growth, IHN says.
Looking at the breweries’ prospects, IHN says they expect local beer volumes, which grew by seven per cent in the interim period, to continue gaining momentum during the 2009-10 book year. Once again, Windhoek Lager will spur growth.
The temporary supply shortage of Amstel boosted premium beer sales, such as Windhoek Lager and Heineken, in South Africa and resulted in double digit-growth during the second half of last year. These brands will continue to benefit from the Amstel dilemma until Amstel’s new brewery in South Africa is up and running, IHN says.
‘The premium beer market has grown increasingly competitive since Heineken pulled South African Breweries’ (SAB) right to brew Amstel in March 2007. SAB has been rolling out premium beers ahead of the new brewery’s opening in a bid to flood the high end of the market. While the growth in the premium sector slowed recently in line with slowing disposable income growth, the premium sector remains a growth area in the long-term,’ IHN maintains.
The market watcher expects total revenue to maintain its growth momentum this year, although at a slightly lower pace. IHN furthermore expects NBL’s export markets, especially Angola, to remain upbeat.
Botswana might prove to slump in the short-term after its government imposed sin tax of 30 per cent on alcoholic drinks. Depending on the outcome of discussions in this regard, exports are likely to be dampened. This doesn’t particularly worry IHN, as Botswana only represents less than five per cent of NBL’s total export market.
‘On balance, including the South African market, we expect a positive growth performance in the next financial year with focus remaining on the premium market in South Africa.’
NBL will receive royalties on their agreement with Diageo, which allows the latter to brew and distribute Windhoek Lager and Windhoek Light in markets worldwide, except for certain African countries including South Africa and Namibia. Although uncertain about the extent, IHN expects this arrangement to boost NBL’s revenues from 2010 onwards.
EBITDA margins are set to improve slightly to 17,3 per cent, operating profits are expected to grow by 13,8 per cent and HEPS by 4,7 per cent this year and 37 per cent in 2010, according to IHN.
The jump in HEPS next year will mainly be the result of the expected equity income from DHN, the joint venture between NBL, Heineken and Diageo in South Africa, after the completion of the new brewery in Gauteng, IHN explains.
jo-mare@namibian.com.na