There may be hard times ahead for Nigeria’s two brewing giants, Nigeria Breweries Plc and Guinness Nigeria Plc, as headwinds that have continued to drag down their earnings’ growth, still persists.
According to analysts at Renaissance Capital (RenCap), following sustained headwinds, including the squeeze on household wallets following the partial removal of fuel subsidies in January 2012, a sharp rise in electricity tariffs and security challenges in north-east Nigeria, the brewing sector’s unit volume growth has decelerated to single-digits from the mid-to-high teens historic growth rates seen prior to 2012.
The report explained that the big brewers are the hardest hit, while smaller brewers remain the winners.
“The large brewers with products in the mainstream beer segment have been the worst hit, with sizable market share loss as consumers down-trade to more affordable beer brands. Consequently, smaller brewers like International Breweries that are focused on the value / affordable beer segment were the key beneficiaries as they saw their unit volume expand and gained market share,” it noted.
The report noted that while earnings growth for NB Plc and Guinness Nigeria has slowed down visibly in response to the reduction in growth on the top line, International Breweries Plc’ earnings have grown by strong double digits over the period.
“As such, we expect sales growth for the brewers to mirror unit volume growth. Specifically, we see Guinness Nigeria and Nigerian Breweries delivering sales growth of 3-4 per cent y/y in 2015E. In contrast, we forecast sales growth of 15 per cent y/y for International Breweries on the back robust growth in unit volumes.