Nigeria’s brewery sector defies economic challenges to record growth
A recent report has showed that the Nigerian brewery sector has experienced growth in recent times, this is in spite of the volatility in the economy occasioned by recession which crippled businesses in the better part of 2016 to the last quarter of 2017.
The report compiled by Afrinvest, in its executive summary of 2019, shows that while stiff competition, lower consumer spending and elevated cost of production have dogged the sector, the sector continues to attract investment due to its attractive pricing opportunity when compared with global peers across emerging and frontier markets such as Kenya, Turkey, India, China, Malaysia, Indonesia and Brazil.
“There is no doubt that the Nigeria’s brewery sector has been plagued by the effect of the economic recession between the second quarter of 2016 to the same period in 2017, and also induced by the decline in global crude oil prices, which fell below US$30.0 per barrel within the period”, it said.
This, the report noted, resulted in a crunch in government revenues, which in turn led to a backlog of unpaid salaries by state governments, exchange rate devaluation and a slowdown in private sector investments.
Consequently, lower disposable incomes, higher unemployment rate and ultimately a moderation in consumer spending, which moderated the earnings of brewing companies.
Other factors which have impacted negatively on the sector have been the security situation in the middle-belt of the country following disruptions in supply of barley, sorghum, maize, rice and wheat, which are primarily sourced in the region by the brewery companies.
The sustained decline in the foreign reserves between September 2014 and December 2016 prompted foreign exchange rationing and restricted capital outflows by the Central Bank of Nigeria (CBN) impacted adversely on the brewery companies which had to import crucial supplies at higher costs.
However, the report noted that the introduction of the Investors and Exporters’ forex window in April 2017, led to improved access for the sector which impacted positively on the industry revenue, as it went up by 14.7% to N508.0bn in 2017 financial year relative to the meager growth of 1.4% year on year recorded in 2016.
Afrinvest also rated the performance of the major players in the industry namely, Nigerian Breweries, Guinness, International Breweries and Champion by assigning performance rating: ‘NB a ‘SELL’, GUINNESS a ‘HOLD’ while INTBREW and CHAMPION are rated ‘BUY’.
“Our rating for NB is based on the company’s continued weak pace of revenue growth which we believe will remain, given the unabated competitive pressures within the sector.
“For Guinness, we believe expected growth will also remain weak although we opine that revenues from spirits will buoy topline performance while the impact of lower finance cost presents an outlook for improvement in bottom-lines.
“Also, we are convinced INTBREW’s performance will be backed by syndicated volume growth for the newly consolidated business, while we based CHAMPION’s rating on our anticipation of sustained improvement in revenues and profit after tax.”
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