SEVEN-UP BOTTLING COMPANY PLC

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1 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 SEVEN-UP BOTTLING COMPANY PLC NSE: 7UP l Bloomberg 7UP NL 2015 Q3 EARNINGS UPDATE Earnings remains resilient despite Surge in Finance Cost Seven-Up Bottling Company Plc. sustained its Year on Year (YoY) growth momentum for the third consecutive period in its 2014/2015 financial year. The company recorded growth both in its top and bottom lines for the three consecutive quarters. Revenue grew YoY in Q3:2015 by 8.87% (NGN59.830bn vs. NGN54.95bn in the previous period). Cost to sales expanded to 62.09% from 60.59% in Q3:2014 while OPEX ratios moderated to 25.27% from 28.09%. Finance charge however surged YoY by 52.83% from the previous year s figure. Earnings after tax remains resilient growing by 15.93% YoY (NGN4.54bn vs. NGN3.92bn in the corresponding quarter). Using a blend of absolute and relative valuation, we arrived at our current target price of NGN implying a 34.44% discount to the current market price of NGN Hence, we maintain our SELL recommendation Revenue expansion sustained though Tempered -7UP has sustained its impressive growth trajectory for the third consecutive time for 2014/2015FY yet again, recording 8.87% YoY growth in top-line (NGN59.830bn vs. NGN54.95bn in Q3:2015). This translated into a QoQ turnover expansion of 26.76% (NGN21.69bn vs. NGN17.11bn) from Q2:2015 performance. We attribute company s continued strong performance to dynamic and strong strategic position in the carbonated soft drink industry. Our discussion with inside sources hinted that growth is likely linked to innovative route to the market and market penetration driven by continuous investment in human capital and aggressive marketing strategy. On the back of the above, we retain our full year revenue growth projection to 8.82% in 2015, on expectation of sustained upbeat performance and recent releases. Earnings strides, despite surge in Finance cost: Analysis of the current result clearly shows that the major cost items are still largely in line with historical band. Cost of sales ratio inched higher to 62.09% from 60.59% in the corresponding quarter and 62.46% 5-year historical average. Similarly, operating expense ratio declined to 25.27% relative to Q3:2014 of 28.09% and 5-year historical average of 25.61%. Finance charge however surged YoY by 52.83% to settle at NGN1.801bn vs. NGN1.18bn in the corresponding quarter. Earnings grew impressively by 15.93% to settle at NGN4.54bn relative to the previous level of NGN3.918bn. We expect full year earnings to settle at NGN5.57bn, implying a 13.50% drop from full year We maintain our SELL Recommendation: We maintain our revenue projection for this current financial year at to NGN84.758bn which is 8.82% growth from previous year s position. We adopted a blend of absolute and relative valuation to arrive at our full year 2015 target price. Updating our models assumption on the basis of 7UP s current releases, we insist that the ticker still trades ahead of our fair price of NGN At a current market price of NGN157.20, we believe the stock trade at a downside potential of 34.44%. On the basis of the above we maintain our SELL rating on 7UP. Target Price: Rating: FEBRUARY 2015 SELL Relative Metrics NGN Current price P/E ttm 13.68x P/B 4.76x Forward P/E 18.09x Forward P/Bv 4.99x Dividend 3.84 Div. Yield 0.02x 52-Wk av. Vol (mn) Fundamental Metrics Trailing EPS BVPS Net Margin 6.57% ROAE 27.57% ROAA 8.67% Asset Turnover 1.32x Leverage 3.18x Mkt. Cap (N bn) Key Price Metrics Today Return -3.03% WtD Return 4.31% MtD Return 4.31% QtD Return -4.96% YtD Return -4.96% 52-Week Return % 52-Week Hi Week Lo Year Hi Year Lo Beta UP NSEASI Analyst: Chiamaka Nwobi chiamakanwobi@meristemng.com 1 P a g e

2 Financial Highlights (NGN billion) SEVEN UP BOTTLING CO PLC Q3:2015 UNAUDITED Result Profit & Loss Account Q3:2015 Q3:2014 y/y Growth 2015f Revenue % Cost of Sales % Gross Profit % OPEX % Other income % Operating Profit % Finance Costs % PBT % PAT % Balance Sheet Fixed Assets % Inventories % Trade debtors and other Receivables % Cash at bank and in hand % Other Assets % Total Assets % Shareholders' fund % Trade Creditors and other Payables % Loans and borrowings: Short term % Loans and borrowings: long term % Total Liabilities % Per share data 7UP Current Price Trailing EPS BVPS Price multiples/ratios Shares Outstanding 0.64 P/E 14.27x 18.41x P/BV 4.97x 5.08x RoAE 37.55% 29.67% RoAA 12.03% 9.27% Financial Leverage x Cost of Sales Margin 62.09% 60.59% 62.46% Gross Profit Margin 37.91% 39.41% 37.54% OPEX Margin 25.27% 28.09% 24.21% Operating Profit Margin 12.74% 11.43% 13.39% Net margin 7.59% 7.13% 6.57% 2 P a g e

3 Analyst s Certification and Disclaimer This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the cover of this report. Each research analyst hereby certifies, with respect to each security or issuer covers in this research that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers (the Issuer); and (2) no part of any of the research analyst s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Research analysts compensation is determined based upon activities and services intended to benefit the investor clients of Meristem Securities Limited (the Firm). Like all of the Firm s employees, research analysts receive compensation that is impacted by overall Firm profitability, which includes revenues from other business units within the Firm. (3) each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting non-material non-public or material public market information. As at the date of this report, any ratings, forecasts, estimates, opinions or views herein constitute a judgment, and are not connected to research analysts compensations. In the case of non-currency of the date of this report, the views and contents may not reflect the research analysts current thinking. This document has been produced independently of the Issuer. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the ratings, forecasts, estimates, opinions and views contained herein are fair and reasonable, neither the research analysts, the Issuer, nor any of its directors, officers or employees, shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Investment Banking. Investment Ratings Fair Value Estimate We estimate stock s fair value by computing a weighted average of projected prices derived from discounted cash flow and relative valuation methodologies. The choice of relative valuation methodology (ies) usually depends on the firm s peculiar business model and what in the opinion of our analyst is considered as a key driver of the stock s value from a firm specific as well as an industry perspective. However, we attach the most weight to discounted cash flow valuation methodology. Ratings Specification BUY: HOLD: SELL: Fair value of the stock is above the current market price by at least 20 percent Fair value of the stock ranges between -10 percent and 20 percent from the current market price. Fair value of the stock is more than 10 percent below the current market price. Definitions Price Targets: Price targets reflect in part the analyst s estimates for the company s earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or market, and may not occur if the company s earnings fall short of estimates. Asset allocation: The recommended weighting for equities, cash and fixed income instrument is based on a number of metrics and does not relate to a particular size change in one variable. 3 P a g e

4 Movements in Price Target Company Name: Seven-Up Bottling Company Plc Date Price (N) Previous Target Price(N) New Target Price (N) Previous Recommendation 04/02/ SELL SELL New Recommendation Company disclosures Meristem or the analyst(s) responsible for the coverage may have financial or beneficial interest in securities or related investments discussed in this report, which could, unintentionally, affect the objectivity of this report. Material interests, which Meristem or the analyst(s) have with companies or in securities discussed in this report, are disclosed below: Company Seven-Up Bottling Company Plc Disclosure a. The analyst(s) hold(s) personal positions (directly or indirectly) in a class of the common equity securities of the company. b. The analyst responsible for this report, as indicated on the front page, is a board member, officer or director of the company c. Meristem beneficially owns 1% or more of the equity securities of the company d. Meristem has been the lead manager or co-lead manager of any publicly disclosed offer of securities of the company over the past 12 months. e. Meristem beneficially holds a major interest in the debt of the company f. Meristem has received compensation for investment banking activities from the company within the last 12 months g. Meristem intends to seek, or anticipates receipt of compensation for investment banking services from the company in the next 3 months h. The content of this research report has been communicated with the company, following which this research has been materially amended before its distribution i. The company is a client of the stock broking division of the Meristem group. j. The company is a client of the investment banking division of the Meristem group. k. The company owns more than 5% of the issued share capital of Meristem l. Meristem has other financial or other material interest in the company. Conflict of Interest It is the policy of Meristem Securities Limited and its subsidiaries and affiliates (Individually and collectively referred to as Meristem ) that research analysts may not be involved in activities that suggest that they are representing the interests of Meristem in a way likely to appear to be inconsistent with providing independent investment research. In addition, research analysts reporting lines are structured so as to avoid any conflict of interests. For example, research analysts are not subject to the supervision or control of anyone in Meristem s Investment Banking or Sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the research analysts published research. Therefore, the proprietary interests of those Sales and Trading departments may conflict with your interests. 4 P a g e

5 Important Disclosure Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Investment Banking. Legal entity disclosures: Meristem Securities Limited is a member of The Nigerian Stock Exchange and is authorized and regulated by the Securities and Exchange Commission to conduct investment business in Nigeria. Legal entity disclosures Meristem Securities Limited is a member of The Nigerian Stock Exchange and is authorized and regulated by the Securities and Exchange Commission to conduct investment banking and financial advisory business in Nigeria. However, the company through its subsidiaries carries out stock broking, wealth management, trustees and registrars businesses which are regulated by the SEC and ICMR. 5 P a g e

6 Contact Information Corporate websites: Brokerage Services ( ) Investment Banking/Corporate Finance ( ) ( ) Wealth Management ( ) ( ) Tel: Registrars ( ) Tel: Trustees ( ) Tel: Client Services ( ) Investment Research ( ) ( ) Tel: Meristem Research can also be accessed on the following platforms: Meristem Research portal: meristem.com.ng/rhub Bloomberg: MERI <GO> Capital IQ: ISI Emerging Markets: Reuters: FactSet: 6 P a g e