2 July 2018 ( Lagos ) :The Brewery sub-sector is made up of the alcoholic beverage manufacturers under their coverage; these companies include segment leader Nigerian Breweries (NB) and a diversified beverage company Guinness Nigeria (GUINNESS). 

Like Analysts expected, market conditions in the brewery segment were tough in the earlier part of 2018 as subdued consumer spending saw beer volumes decline sizably in the period. Notably, NB recorded a 9% y/y sales decline in Q1’18, worse than their 4% y/y decline estimate amid increasing competition from number 3 player in the market INTBREW. 

GUINNESS however reported a more decent performance – 15% y/y revenue growth in its Q3’17/18 period (Jan-Mar). The growth was however driven by a low production base from the previous year as well as a good performance from its spirits segment. 

For H2’18, Analysts expect market dynamics to be influenced by the first phase implementation of the FG’s excise duties increase on alcoholic products. Analysts recall that the government switched from a 20% ad valorem tax rate on alcoholic products to specific higher rates per centiliter. Given that Analysts expect the brewers to at least partly pass on this effective tax increase to consumers, Analysts believe revenue growth in the sector will be supported by increases in product prices in H2’18. 

That said, Analysts also expect the higher selling prices to further discourage patronage and dampen volume performance. For Nigerian Breweries, Analysts see revenue growth ending the year flat at best as expected price increases completely outweigh the rout in volumes. Worryingly, Heineken International, NB’s parent company, stated that the negative beer volume growth was partly driven by some destocking by distributors. 

Meanwhile, top line growth for GUINNESS will normalize to mid-high single digit levels in its FY’18/19 financial year that starts June 2018, supported by its diversified product offerings and possible upside from a recent product launch, Royal Kingdom Lager beer; a mainstream regional beer brand. Given this, Analysts expect competitive intensity to increase in the second half of the year even as INTBREW also ramps up beer supply, noting sizable capacity expansion scheduled to be completed in the period.

Overall, cheaper beer products will remain the most appealing choice for most consumers, and despite volume contraction in the overall market, players with attractively priced portfolios could still grow market share. 

Source : Analysts at Vetiva Capital Management Limited.

Reporting for EasyKobo on Monday , 2 July 2018 2018 in Lagos, Nigeria