Nigerian Breweries, Guinness and International Breweries: A recovery with a catch

Nigerian beer drinkers have had a grim few years as they continue to grapple with weaker purchasing power and a thirst for the cheap.

So have the people who own the breweries. Successive naira devaluations turned dollar-linked costs and borrowings into a bonfire of equity, and all three listed brewers spent the past two years nursing accumulated losses.

Nine-month results to September suggest the fire is out. Combined revenue at Nigerian Breweries, Guinness Nigeria and International Breweries rose 7 per cent to N1.99tn, and every one of them widened its operating margin. But that is where the family resemblance ends.

Guinness Nigeria is the one doing the most selling. Third-quarter revenue jumped 41%, and its slice of the trio’s sales rose from 18 to 20% in a year. Now controlled by Singapore’s Tolaram, it has resumed paying out dividend: N19.7billion already this year, plus a N7 per share interim dividend declared last week.

Yet much of the 53 per cent rise in post-tax profit came from FX losses that simply stopped. Finance costs fell from N15.3billion to N5.8billion. While sales are up, balance sheet is skinny.

The overdraft exceeds cash, current liabilities are one and a half times current assets, and finished-goods stock has more than doubled since December (from N7.1 billion to N17.5 billion). Either they is stocking up for Christmas, or the trucks are moving slower than the invoices suggest.

Operating cash flow fell 17% to N51.5 billion with more than half of it going to spending on property, plants and equipment. Another N19.2 billion was spent on dividend and the balance to its external creditors. At about 15 times annualised earnings, the shares price in the growth story, not the working-capital one.

Nigerian Breweries, the Heineken-controlled giant, is the mirror image. Volumes fell in the third quarter and revenue slipped 3%. But third-quarter gross margin leapt more than seven points, and NB has repaid all N60billion of its debt to sit on N77billion of net cash. Operating cash flow more than doubled to N150billion.

Its return to a third-quarter profit, the first since 2022, owes something to a N5.8billion tax credit. Receivables up 83% deserve a question too. Still, with retained earnings back in the black, a dividend is now a matter of when, not whether. The worry is that NB is pricing its way to profit, and it cannot do that forever with consumers this stretched.

International Breweries, AB InBev’s local arm, posted the oddest numbers. Its gross margin rose six and a half points, the biggest improvement of the three. Yet net profit fell 6 per cent as a deferred tax asset unwound and the effective tax rate hit 40 per cent.

More interesting is what it did with its share premium: N191billion used to wipe out past losses, N84billion handed straight back to shareholders. That is about 50 kobo a share, a 4 per cent yield in one go. At nearly 30 times earnings, with a free float of 2.5 per cent, the stock is less an investment than a waiting room for whatever its 96 per cent owner does next.

The sector’s recovery is real but narrow. Margins came back because the naira stopped falling and the debt went away, not necessarily because Nigerians are drinking more. The fourth quarter, when the festive season does the heavy lifting, will show who has won market share and who has merely borrowed it. Investors after the cleanest balance sheet should look at NB.

Those who want momentum can have Guinness, provided they keep an eye on the warehouse.

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