Overview of the Industry

Transcription

1 Stock Analysis/Recommendations Food/Beverages Sector - Beverages, Soft Drink Bottling & Confectionary Companies 22 Overview of the Industry The beverage industry is dominated by some of the key global brands. The main business constraints in Nigeria remain relatively low purchasing power and expensive operating environment and high import dependence on inputs, particularly sugar which rose by over % in Sugar, being a major raw material recorded % price increase in The industry continued to be beset by the poor state of infrastructure particularly epileptic power supply, which has impacted on profitability and led to reduction in margin. The Business Monitor International (BMI) forecast that food and drink consumption is expected to grow by 39.7% from This could reflect population growth and expansion of retail outlets. Festive seasons particularly, Easter and Christmas and Muslim salah celebrations have helped to increase demand for soft drinks and beverages products. The level of competition among players in the market is on the increase with new players such as Classic Beverages Nigeria Ltd, CWAY Food & Beverages Company Nigeria Limited were able to change market dynamics and secure market share with the successful introduction of their products. 23

2 Overview of the Industry The increased competition has resulted in the deployment of various strategies to increase sales and gain market share. These includes; the re-branding of soft drinks in plastic bottles, making it possible for drinks to be sold in traffic jams and other 'on the go' market points. They new players capitalized on the traditional glass packaging format of Coca-Cola and 7- Up to shut them out of the large traffic market. Coca-Cola responded by confronting such brands headlong and introduced its own plastic bottles. Another notable trend in the beverages industry is the high level diversification of products and increase in the product base by the major players. While Coca- Cola already has the fanta brand in 3 different flavours and Coke in two flavours, other players like CWAY and Lacasera have sought to aggressively increase their product portfolio thereby widening their market reach. Outlook for beverage market looks promising owing to; - Growing population - Increasing urbanisation - Growth in hotel and hospitality industry 24 Overview of the Industry The existing ban on importation of fruit juices also gives domestic producers opportunity to expand market share. The quoted companies on the NSE are Nigerian Bottling Company Plc and 7UP Bottling Company Nigeria Plc. These companies have been able to maintain their dominance in terms of volumes and sales. Nigerian Bottling Company Plc controls 65% market share, while 7UP Bottling Company Plc controls % of the market. The remaining 10% is controlled by the numerous fringe players within the industry.

3 Key Ratios Analysis KEY RATIOS NBC Plc 7 UP Bottling Plc Industry Average N` million N` million Q Q Turnover 26, , Turnover Growth (%) PAT PAT Growth (%) Net Profit Margin (%) Total Assets 46, , ROE(%) ROA (%) No of Issued Shares 1,9 512 Core Holdings Free Float Market Capitalization 41, , Shareholders Funds (N), , Per Share Data Analysis PER SHARE DATA NBC Plc 7 UP Bottling Plc Industry Average (N) P/E Ratio Price/Book Value (X) Dividend Per Share (Naira) Dividend Yield (%) Earnings Yield (%) Year Start Price (Naira) Current Share Price (Naira) YTD Appreciation (%)

4 Volume Flow on NSE NBC Plc 7 UP Bottling Plc Volume Traded (Last 6 months) (Million) 27,902,054 11,891,676 Average Daily Volume Traded (Weekly),5 17,5 Book Value Per Share (N) Fair Value (Naira) Entry Price (Naira) Upside/(Downside) Potential % Analyst Recommendation Long-Term Buy Watch 28 Nigerian Bottling Company Plc Nigerian Bottling Company Plc is a multinational organization that have grown to become the predominant bottler of alcohol-free beverages in Nigeria. The company was incorporated as a private limited liability company on 22 November, 1951 as a subsidiary of the A.G. Leventis Group with the franchise to bottle and sell alcoholic-free beverages in Nigeria including the Coca Cola brand. It became a public company in 1972 and was subsequently listed in the food & beverages sub-sector of the Nigerian Stock Exchange in Analysis of shareholdings showed that Coca Hellenic Bottling Company (CCHBC) has an equity stake of.81% through Molino Soft Drinks S.A, Luxembourg and 10.62% through CCBC Services Limited, Ireland while the remaining 33.58% are held by shares an directors and other shareholders. Coca Hellenic Bottling Company (CCHBC) emerged in the merger of Hellenic Bottling Beverage Company Plc in The company is responsible for the manufacturing and sales of over 33 Coca-Cola brands in Nigeria. It currently has 16 bottling facilities, 82 distribution warehouses and 200,000 distribution outlets located across the country. 29

5 Nigerian Bottling Company Plc Since production started, NBC Plc has remained the largest bottler of non-alcoholic beverages in the country in terms of sales volume, with about 1.8 billion bottles sold per year, making it the second largest market in Africa. The company has 5 subsidiaries and 4 associated companies. Shareholdings in these companies are as follows; Subsidiaries & Associated Companies Frigoglass 23.9% Valley Foods Ltd 22.54% Blaize Industrial Co. Kupa Farms Ltd % % Crown Products Ltd % Apapa Chemical Ltd 100% NBC Benin Ltd 100% Sunvit Agro 100% Agricultural Seeds Ltd % The company recently made strategic moves to re-launch some of its products and portfolio expansion to provide wider coverage for consumers across the country, while also initiating processes to enhance its supply chain and working capital management. Nigerian Bottling Company Plc It recently invested about N10 billion to increase its bottling capacity and enter into an on-going partnership with CCHBC to recycle PET bottles. The company has the largest market share in the industry given the acceptability of the Coca-Cola brand world-wide and has continued to consolidate to increase its market reach to wide range of consumers. The company's production plant in Benin was recently damaged by fire which led to an impairment charge of N3.166 billion recorded against the assets affected by the fire. The company is expected to improve on its strong product portfolios and increased volumes given the commencement of operations at its rebuilt factory in Benin. The Board of Directors of the company recommended a kobo dividend in its audited result for the year ended 31st December, 2009 The company forecast a turnover of N20.62 billion and PAT of N675 million for Q3,

6 Nigerian Bottling Company Plc - Fundamentals Q1 ended 31 st March 2010 N 2009 N % change Current Turnover billion billion 15.53% 19 kobo Profit After Tax million 1.05 billion % YTD Change Net Profit Margin 0.91% 4.% % 46.83% Year End Issued Shares Free Float Market Cap Industry Average P/E Ratio Industry Average P/E ratio December 31st 1.9 billion 4.06 million N billion 19 kobo N2.83 K Current Price Fair Value YTD High YTD Low BVPS P/BV (X) ROA % ROE % Analyst Recommendation N31.K N.78K N.00K N21.42K N22.97K % 0.81% Long-Term Buy 32 Nigerian Bottling Company Plc Price History NIG. BOTTLING COMPANY (31.40, 31.40, 31.40, 31.40, ), Volume (68,868) x July August September October November December 2010 February March April May June July 33

7 Nigerian Bottling Company Plc Relative Strength Index Relative Strength Index ( ) July August September October November December 2010 February March April May June July 34 7up Bottling Company Plc 7up Bottling Company Plc was incorporated in i959. it was listed on the Nigerian Stock Exchange in It is into bottling and marketing of soft drinks. The Company is largely owned by Affelka Group with a total holding of 72.24%. The Nigerian public holds the remaining 27.76%. The company has over the last few years been facing stiff competition from its major competitor in the soft drinks market Coca-cola (manufactured by Nigerian Bottling Company Plc). The Pepsi brand is the major driver of the company s business and is the most popular and well received by the market. It has continued to overshadow the other brands due largely to its increasing competition with Coca-cola and its global recognition as a top soft drink brand. The company intends to leverage on this platform by focusing and developing its core product and improving on the quality of its other brands in order to gain more share of the market. The 7-up brand has suffered a decrease in market share over the last ten years. It was reputed as one of the most consistent performers in terms of turnover and growth but gradually became less popular when compared to the other more established peers within the Soft drinks industry.

8 7up Bottling Company Plc The company in response to these development has increased its marketing and distribution efforts towards re-launching the product and this has already started reflecting in the reception being given by the market. The performance of the company's sock on the exchange has shown that it is not a fast moving stocks in the capital market and may be more attractive to investors with appetites for risk requiring regular income flows through dividend payments. The company recorded a slow growth in earnings in 2008 was due to susceptibility to economic challenges experienced in the country. The company recently declared a dividend of N1. per share. The company recently released its Q2 results after a long silence. We expect the market to react positively. It however forecast a turnover of N billion and PAT of N6 million for Q up Bottling Company Plc - Fundamentals Half year ended 2009 Sept. th N` N`000 % change Current Turnover billion billion 17.36% N1.67 kobo Profit After Tax million million 6.63% YTD Change Net Profit Margin 4.78% 5.26% -9.13% 59.86% Year End Issued Shares Free Float Market Cap Industry Average P/E Ratio Industry Average P/E ratio March 31st million million N billion N3.09k N1.81K Current Price Fair Value YTD High YTD Low BVPS P/BV (X) ROA ROE Analyst Recommendation N47.00K N.12K N49.49K N29.K N.67K % 9.66% Watch 37

9 7 Up Bottling Company Plc - Projections Forecast FYE 31 st March N` 000 % change Turnover 38. billion 10.01% Profit After Tax 1.79 billion 16.99% 2009 Forecast 2009 Forward P/E Ratio Current Dividend Yield 2009 Forecast Dividend Yield Earnings Yield at Current Market Price % 3.99% 7.43% We forecast a Turnover and PAT of N41.83bn and N1.85bn for FYE 09 respectively. A forecast of N3.61 and DPS of N1.80 for FYE Up has the second largest market share in terms of volumes in the packaged/soft drinks sub sector, following closely behind NBC, which occupies the first position. We expect the impact of sales during the yuletide seasons to boost FYE result. However, we remain cautious as the rising prices for sugar (sugar has been trading at record highs) may impact on costs which reduces earnings potentials Up Bottling Company Plc Price History x100 7-UP ( , , , , ), Volume (26,466) July August September October November December 2010 February March April May June July

10 7 Up Bottling Company Plc Relative Strength Index 105 Relative Strength Index ( ) July August September October November December 2010 February March April May June July 5 Key Ratios Analysis KEY RATIOS Nestle Nigeria Plc Cadbury Nigeria Plc Industry Average N` million N` million Q Q Turnover 17, ,4.00 Turnover Growth (%) PAT 2, PAT Growth (%) Net Profit Margin (%) Total Assets 41, , ROE(%) ROA (%) No of Issued Shares 661 3,129 Core Holdings 412 1,568 Free Float 249 1,565 Market Capitalization 234, ,544. Shareholders Funds (N) 13, ,

11 Per Share Data Analysis PER SHARE DATA Nestle Nigeria Plc Cadbury Nigeria Plc Industry Average (N) P/E Ratio Price/Book Value (X) Dividend Per Share (Naira) Dividend Yield (%) 2.99 Earnings Yield (%) Year Start Price (Naira) Current Share Price (Naira) YTD Appreciation (%) Volume Flow on NSE Nestle Nigeria Plc Cadbury Nigeria Plc Volume Traded (Last 6 months) (Million) 20,6, ,8,6 Average Daily Volume Traded (Weekly) 109,868 8,673 Book Value Per Share (N) Fair Value (Naira) 3.14 Entry Price (Naira) Upside/(Downside) Potential % Analyst Recommendation Buy Long-Term Buy 43

12 Cadbury Nigeria Plc Cadbury Nigeria Plc was incorporated in 1965 and was listed in the Food/Beverages subsector of the Nigerian Stock Exchange in The company is a producer/manufacturer of sugar confectionery, gum and food beverages for the Nigerian and West African sub-region markets. Some of its leading brands includes; Tom Tom, Bournvita and Bubba bubble gum, Eclairs, Chocki, Trebor Mints, Halls Take 5 (vitaminised candy), and Creme Rollers. Cadbury is.02% owned by CSOL, a subsidiary of Cadbury Plc, a UK based global confectionery company. The remaining 49.98% is held by a highly diversified spread of Nigerian individual and institutional shareholders. The company has one subsidiary, Stanmark Cocoa Processing Company Limited, a private company engaged in the processing of cocoa beans to butter, powder, liquor and cake and which supplies all the cocoa powder needs of the Cadbury. SCPCL is 93% owned by Cadbury Nigeria. The company recently did a rights issue of N22.2 billion through an offer of 7 new ordinary shares for every 3 ordinary shares held at a price of N8.65 per share which was 85.56% subscribed. The company announced that it has paid off all its outstanding N15.2 billion bank debts that have weighed down its bottom-line in recent years. 44 Cadbury Nigeria Plc Following a major strategic review in 2008, the company has commenced an extensive restructuring exercise to restore its path to profitable growth and has also identified significant growth potentials from its core brands, BOURNVITA and TOMTOM As part of its on-going rebuilding process, it recently appointed 3 new Non-Executive Directors with vast experience in transformational strategy to improve its operations and return back to profitability. Cadbury is a good dividend paying stock prior to the advent of financial losses that impaired on its performance. It last declared a dividend of N1. kobo per share in The company forecast a turnover of N billion and PAT of N1.017 billion for Q3, Going forward, we foresee a bright prospect for the company and reiterate that the company would be a good stock to take position into for medium/long term.

13 Cadbury Nigeria Plc - Fundamentals Q1 ended Mar 31st 2010 N 2009 N % change Current Turnover 6. billion 5.36 billion 19.% 14 kobo Profit After Tax million million - YTD Change Net Profit Margin 6.41% % % Year End Issued Shares Free Float Market Cap Industry Average P/E Ratio Industry Average P/E ratio December 31st billion billion N billion 14 kobo N2.62k Current Price Fair Value YTD High YTD Low BVPS ROA ROE P/BV % % (X) Analyst Recommendation N26.70K - N34.84K N9.97K N4.20K 1.94% 3.13% 6.36 Long-Term Buy 46 Cadbury Nigeria Plc Price History x1000 CADBURY ( , , , , ), Volume (184,7) July August September October November December 2010 February March April May June July

14 Cadbury Nigeria Plc Relative Strength Index Relative Strength Index (.9826) July August September October November December 2010 February March April May June July 48 Nestle Nigeria Plc Nestle Nigeria Plc was incorporated in 1961 as a company with focus on food and seasoning products. The company was listed on the Nigerian Stock Exchange on April 20, The company is a multinationals with business activities in the manufacturing, marketing and distribution of foods products, and manufacturing of hydrolyzed plant protein mix of Maggi cubes and other foods. Nestle is 62.3% owned by Nestle S.A. Switzerland. The remaining 37.7%% is held by a highly diversified spread of Nigerian individual and institutional shareholders. The company's performance in Q was boosted by increased efficiency following the recent upgrade of its Agbara plant in It invested about N9 billion for expansion and upgrade in the following areas; new Jumbo Roller dryer for the all-family cereals plant, new high speed wrapping machines for Maggi, ultra-modern high speed automated machines for Nestle pure life waters, New vacuum band dryer for Milo and new warehouse extension for raw materials. its ability to significantly trim down cost also impacted on bottom-line during the period 49

15 Nestle Nigeria Plc The management of the company disclosed that about N16 billion has been invested in the on-going construction of its new factory at Sagamu in Ogun State and would be completed by Q4 of Upon completion, the plant will meet supply shortfall, especially for its core brands, Maggi and Milo. The new plant is targeted at increasing Maggi s capacity by an additional 22% (Maggi contributes about % to the company s turnover). It expects the Sagamu plant to double its current installed capacity, the Agbara plant presently operates at 85% of its installed capacity. As a result of the huge capital expenditure, it took up additional loan facility which is locally sourced (Nestle had earlier taken an inter-company loan in 2008 amounting to US$94 million facility) of N3 billion with a 12 months tenure and an interest rate of 17% per annum. Nestle has the highest dividend payout ratio of 99% i.e. pays almost entire earnings as dividends. (declared N10.K for 2009 FYE) Nestle Nigeria Plc Consistent and sustained demand due to the nature of the products (counter cyclical nature) of the sector. Most analyst are optimistic that efficiency gains from newer equipments and upgraded production processes will continue to support margins going forward. The company forecast a turnover of N19.5 billion and PAT of N1.856 billion for Q3,

16 Nestle Nigeria Plc - Fundamentals Q1 Ended March st N 2009 N % change Current Turnover billion billion 24.26% N4.19K Profit After Tax 2.76 billion 1.76 billion 56.82% YTD Change Net Profit Margin 5.98% 3.07% 94.79% 48.23% Year End Issued Shares Free Float Market Cap Industry Average P/E Ratio Industry Average P/E ratio Dec 31st 6.54 million 249 million N billion N16.32k N2.19K Current Price Fair Value YTD High YTD Low BVPS P/BV (X) ROA % ROE % Analyst Recommendation N3.00k N3.14K N367.K N239.K N20.17K % 20.09% Buy 52 Nestle Nigeria Plc Price History NESTLE (5.000, 5.000, 5.000, 5.000, +0.00), Volume (295,098) x100 1 July August September October November December 2010 February March April May June July 53

17 Nestle Nigeria Plc Relative Strength Index Relative Strength Index ( ) July August September October November December 2010 February March April May June July 54 National Salt Company Nigeria Plc National Salt Company of Nigeria Plc was incorporated in Nigeria in Sequel to its privatization in 1982, the Company was listed on the Nigerian Stock Exchange (NSE) in October The Company engages in two major activities of refining and marketing of salt in different grades namely table, kitchen and industrial. Its business mix is largely skewed towards the production of edible salt which constitutes over 96.5% of its turnover. Dangote Salt Ltd. (Subsidiary of Dangote Industries Limited) accounts for about 84.88% of the aggregate holdings (2.21bn shares) as of December 31, NASCON's dwindling corporate fortunes marked by persistent operational losses were reversed by the consummation of a strategic reverse acquisition by Dangote Salt Limited in The company is currently a dominant player in the salt market (with over % market share) and has been strategically repositioned to maintain this competitive advantage in the Nigerian Salt Industry.

18 National Salts Company Nig. Plc - Fundamentals Half Year Ended June N` N`000 % change Current Turnover 4.28 billion 3. billion 18.9% 28 kobo Profit After Tax million million 18.74% YTD Change Net Profit Margin 17.85% 17.84% 0.05% % Year End Issued Shares Free Float Market Cap Industry Average P/E Ratio Industry Average P/E Ratio December 31st billion 397. million N billion kobo N Current Price Fair Value YTD High YTD Low BVPS P/BV (X) ROA % ROE % Analyst Recommendation N7.K N8.41K N10.97K N4.N N1.57K % 36.28% Hold/Buy 56 National Salt Co. Nigeria Plc - Projections Forecast FYE 31 st December N` 000 % change Turnover 9.07 billion 16.0% Profit After Tax 1.56 billion 52.0% 2009 Forecast 2009 Forward P/E Ratio 2009 Forecast Dividend Yield 71 kobo % We forecast a Turnover and PAT to N7.20bn and N1.90bn for FYE 09 respectively. A forecast of 71 kobo and DPS of kobo for FYE 09. The company is currently a dominant player in the salt market (with over % market share) and has been strategically repositioned to maintain this competitive advantage in the Nigerian Salt Industry. The refining and marketing of table kitchen (edible salt) and industrial salts constitutes over 96.% of its turnover distribution. 57

19 National Salt Co. Nigeria Plc Price History x1000 NASCON ( , , 7.000, 7.000, ), Volume (728,2) July August September October November December 2010 February March April May June July National Salt Co. Nigeria Plc Relative Strength Index Relative Strength Index ( ) July August September October November December 2010 February March April May June July 59

20 For More Information Contact: Research, Strategic Planning & Services Dept Sterling Capital Market Limited Block 12, Plot 1b Frajend Close, Osborne Foreshore Estate, Ikoyi, Lagos. Tel: 234 (1)