IntBrew: Analysts Estimate Weak Earnings as Industry Headwinds Outlook
Inelastic nature of the beers and ready to drink products will exacerbate demand pressure down the year, some analysts have said.
Equity analysts noted that lower purchasing power is putting pressure on disposable income of consumers and more than ever, the need to pro-rate household disposable income has become a skill.
With inflation rate at 12.56%, there is general pressure on cost amid weak personal leverage among beer consumers.
Analysts say the beer industry is confronted with multiple issues including the need to jerk up prices due to increased cost profile.
Government has raised excise duties, foreign exchange scarcity is affecting operators with foreign currency loans obligation amid naira devaluation effects on capital, cost and overall balance sheet.
As detailed in its result, there is obvious pressure on demand for International Breweries (IntBrew) Plc.’s products, a key challenger in the beer market, and this affected the company’s performance scorecard.
In the second quarter, IntBrew recorded material decline in sales due to coronavirus outbreak which resulted to economic lockdown.Obvious pressure cast doubt on future outlook in the segment, and this forced analysts to downgrade revenue estimates by 13.24%.
The brewer reported a 24.66% decline in revenue to ₦25.27 billion in Q2: 2020, coming from strong position when sales was ₦33.53 billion in Q2:2019.Analysts at Meristem Securities Limited said as expected, sales slowed during the period due to softer demand for alcoholic beverages in the absence of social gatherings, plus a general shift towards non-discretionary spending.Analysts explained that the underwhelming outing in the second quarter weighed on the already fragile first quarter performance where revenue inched up by a meagre 0.72% relative to Q1:2019.As a result, topline settled at ₦60.61 billion for H1:2020 compare to ₦68.63 billion in H1:2019.
“We still see scope for further decline in sales despite the phased relaxation of lockdowns due to the ongoing social gathering restrictions, which might likely remain for the rest of the year.
“Considering the significant impact COVID-19 had on sales in the last quarter, we envisage volumes in the coming period to remain depressed amidst the ongoing intense competition in the industry.
“Risks remain tilted to the downside, thus, we revise our revenue projection downwards by 13.24% to ₦111.97 billion from ₦126.79 billion earlier projected”, Meristem Securities stated.
This implies a 15.40% decline from the brewer’s revenue performance in financial year 2019.However, Meristem Securities noticed that a sharp cut in marketing spend sustained operating expenses downtrend
Read Also: International Breweries Records Worst Q2 Performance after Merger, Dump Analysts say
In Q2 standalone, Meristem said production costs fell by 21.20% in line with the drop in revenue to ₦21.90 billion, bringing total cost of sales for H1:2020 to ₦51.07 billion which was 5.32% less than H1:2019.
The drop off is traceable to 23.49% declines in raw material expenses and overhead costs, 53.21% decline in technical management fees and 48.86% drop in depreciation expenses.
IntBrew: Analysts Estimate Weak Earnings as Industry Headwinds Outlook
