The start of 2024 has largely been challenging for Nigerian Breweries Plc (NB), as the material FX devaluation and stubborn inflation dampened profitability in Q1'24. In FY'24, we expect NB to report a loss of N61.32 billion, materially lower than the loss of N106.31 billion in 2023, stemming from higher prices and volume coupled with a tamer currency devaluation. We have a BUY recommendation on the ticket with a 12-month TP of N47.85.
Sustained growth in top-line
To navigate the challenging business environment in Nigeria, we believe that NB will continue prioritising value capture over volume, which will likely increase its FY'24 revenue by 34.3% to N805.92 billion. Already, the company has hiked prices twice this year across the premium, mainstream and economy brands. We expect the company to continue to focus on premiumisation, with products like Desperados seeing improved traction in the spirited beer brand. Elsewhere, despite the higher urbanisation and a growing middle class in Nigeria, we forecast a modest growth of 5.0% in volumes, as higher prices are likely to constrain demand.
Valuation
The net impact of the changes to our model translated to an increase in 12-month TP to N47.85 (vs N37.80 previously), implying a 105.8% upside to the current price of N23.00. Currently, NB is trading at a lower EV/EBITDA of 5.76x from its historical 5-year average of 6.78x. While we believe that investors may be cautious in the bear market, given the still challenging fundamentals, we are positive on the long-term prospect of the company, stemming from sustained positive working capital despite operating challenges and our expectation for earnings to rebound upon a more stable FX environment.
