Nigerian Breweries Plc (NB or the company) was incorporated in 1946
but began operations through its Lagos office in 1949. The company
became a public liability company in 1990 in which it had its name
changed from Nigerian Breweries Limited to Nigerian Breweries Plc. NB
is involved in the brewing, marketing and distribution of larger beer,
stout and non-alcoholic malt drinks. The company’s brand portfolio
consists of the following:
Nigerian Breweries is a subsidiary of Heineken Holding NV which has a
54% equity ownership of the company. The company which is situated in
Lagos operates through five breweries strategically located in Lagos
(1946), Aba (1957), Kaduna (1963), Ibadan (1982) and Enugu (1993). NB
is regarded as one of the largest breweries in Africa having once been
the most capitalised company listed on the NSE (with an estimated 30%
of total market capitalisation in 2005).
The company’s major competitor is Guinness Nigeria Plc for which they
both jointly control over 80% of total market share. NB’s competitive
advantage however lies in the diversity of its product portfolio as it
has been able to attract a relatively higher patronage in most
segments of its business especially among lagers and non-alcoholic
drinks.
In response to competition, Nigerian Breweries has been involved in
several re-branding, product development and diversification efforts
in the last 5 years. In 2006, the company launched its Guilder Max
brand which was a darker, richer version of the successful Guilder
Lager.
In an attempt to enter the soft drink market, NB launched the Farouz
brand of soft drinks (pineapple and pear flavour). Recently, they
repackaged the Maltina brand by introducing a larger sized bottle
while maintaining the price of the former bottle. The Star brand which
is the flagship product of the company was also rebranded and has
achieved huge success since then.
Perhaps most impressive is NB’s marketing strategy. The company has
been at the fore front of several event sponsorships and show
promotions notable amongst which are the “Star Quest, “Guilder
Ultimate Search and the Amstel Malta Box Office (AMBO). Other
advertising media deployed by NB include print, electronic and
billboards. Such huge investments have yielded huge dividends with
turnover volumes growing at high rates.
Nigerian Breweries looks well placed to take advantage of the ever
growing demand for beers, stouts and non-alcoholic drinks in Nigeria.
Its success would however depend on the ability to improve market
share through continuous market penetration and product development
strategies. The company should also invest heavily human capital
development as well as strengthen its research and development
capabilities. Its leverage on the reputation of parent company
Heineken also remains a critical success factor for the long term.
Investment Strategy
In terms of operating performance, over the past 5 years (2002-2006),
the company grew its turnover by a Compound Annual Growth Rate (CAGR)
of 15% from N48.5 billion to N86.3 billion while PAT increased by an
11% CAGR from N7.2 billion to N10.9 billion. Despite its organic
expansion through regular plant construction and asset acquisition
over the years, the company’s fixed assets and net assets have grown
by a 4% and 8% CAGR respectively. However, quite impressive is the
fact that its Return on Capital Employed (RoCE) stands at 45% clearly
showing its ability to grow earnings at a much faster rate than asset
growth.
NB has an impressive dividend policy. The company has consistently
paid cash dividends for the past 15 years and has declared 1:1 scrip
issues on four occasions during this period. At its current price, the
company is valued at 19.16 times its forward earnings – higher than
that of Guinness at 18.63x.
However, based on its generous dividend policy (dividend yield 4.99%)
and its relative price stability, we place the shares of NB on a HOLD
for short term oriented investors and a BUY for investors with long
term horizons.
