Nigeria | NGX

The global beer market sustained its resilient performance in 2022, despite the negative spill-overs from the multiple macroeconomic headwinds that impacted input costs and supply chain in the year. Based on an estimate by Statista, the global beer market expanded 18.2% y/y in 2022 to $643.4bn – the fastest in the last 5 years. This was mainly driven by an estimated 6.4% y/y increase in sales vol- ume to about 964.9 million hectolitres (mhl) and price increases on most brands’ product portfolios in reflection of the surge in the global inflation rate in the year. However, the knock-on effect of the war in Eastern Europe – the spike in raw materials, logistics, and operating costs – drove a sizeable 28.0% y/y jump in the average cost of beer production according to an estimate by Israel-based Social Invest- ment Platform – eToro. Consequently, leading global brands such as AB-InBev and Heineken group reported a decline of 0.1ppt and 19.4% in EBIT margin and PAT, respectively.

With a five-year net income CAGR of 7.7%, NESTLE appears resilient amidst macroeconomic volatilities. We like the diversity of its product mix and aggressive advertising via online channels & flagship campaigns like the Maggi O Setigo Cooking Show and the Golden Morn heritage Campaign that have partly supported volume growth. Similarly, the company's ability to raise product prices in response to rising input costs has also boded well for its revenue. Our retail product price survey revealed that between August 2022 and February 2023, the company raised prices across its major product lines by an average of 17.0%. We note that the sustained price increases and strong volumes were responsible for the 27.0% and 25.6% revenue growths in FY'22 and Q4'22, respectively, that masked production and finance cost pressures.

Dangote Cement Plc (DANGCEM) commenced 2023 with a bang, exciting market watchers with prospects of more near-term rewards. Indeed, given the company's lean free float (c.12.3%) and concentrated ownership, a share buyback plan was always going to excite markets. In our view, the renewed interest in the ticker may have also been inspired by experiences from the previous tranches of the programme, wherein the buybacks were executed at multi-year high prices (albeit at the market). However, there is no guarantee that events will play out the same way this time as investors await further details on the timing and terms of the share buyback, which, per SEC directive, would have to be executed before the 12th of December 2023.

In FY'22, passthrough from foreign exchange losses took the shine off earnings, with after-tax profit rising by only 4.1% to N13.2 billion, despite a 29.4% surge in operating profit. Without the associated foreign exchange losses (N26.3 billion), NB would have recorded a 211.9% surge in profit to N39.2 billion in the review year. As expected, this currency pressure was linked to the company's strong reliance on imported raw materials (c.45.0% of total) and other foreign inputs, contributing to the 69.8% increase in net foreign currency exposure to € 139.1 million.

The Afrinvest weekly sentiment weakened to 1.7x from 3.6x recorded in the prior week Despite the downbeat investor sentiment, we expect the market to trend upwards as investors continue to react to corporate earnings results.

Following the release of FY'22 financials and subsequent conversations with management, we raise our revenue projections for WAPCO across our forecast horizon. Specifically, we have a new revenue CAGR of 12.3% over our five-year forecast horizon (vs 11.5% previously). Our optimism reflects the potential impact of the ongoing debottlenecking exercises in its Ashaka and Ewekoro plants, which are likely to support cement volumes amidst steady demand and also improve economies of scale. Following the drag on volumes driven by inadequate gas supply and depressed consumer wallets in FY'22, we now project an 8.5% volume improvement for the current financial year aided by the abovementioned supports. In particular, the debottlenecking exercise is expected to free up over 2.0 million metric tonnes (MMT) in installed capacity and improve the firm's ability to meet demand.