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 NGN103.05 implying a 34.44% discount to the current market price of NGN157.20. 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 2014. 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 NGN103.05. 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 NGN103.05 Current price 157.20 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) 0.125 Fundamental Metrics Trailing EPS 11.02 BVPS 31.52 Net Margin 6.57% ROAE 27.57% ROAA 8.67% Asset Turnover 1.32x Leverage 3.18x Mkt. Cap (N bn) 100.70 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 135.29% 52-Week Hi 188.52 52-Week Lo 71.40 Year Hi 165.40 Year Lo 156.40 Beta 0.30 7UP NSEASI 8 4 0 Analyst: Chiamaka Nwobi chiamakanwobi@meristemng.com 1 P a g e
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 59.830 54.954 8.872% 84.758 Cost of Sales 37.148 33.298 11.56% 52.94 Gross Profit 22.682 21.656 4.74% 31.818 OPEX 15.116 15.438-2.08% 20.52 Other income 0.059 0.065-9.34% 0.051 Operating Profit 7.624 6.283 21.34% 11.349 Finance Costs 1.801 1.179 52.83% 2.164 PBT 5.823 5.105 14.07% 8.185 PAT 4.542 3.918 15.93% 5.566 Balance Sheet Fixed Assets 43.461 37.894 11.40% 42.546 Inventories 10.564 9.460 11.67% 11.693 Trade debtors and other Receivables 2.752 2.840-3.10% 5.053 Cash at bank and in hand 3.891 4.919-20.90% 4.777 Other Assets 0.793 0.751 5.61% Total Assets 61.460 55.863 10.02% 64.211 Shareholders' fund 20.269 17.329 16.97% 20.192 Trade Creditors and other Payables 13.504 13.996-3.51% 4.631 Loans and borrowings: Short term 6.595 1.433 360.11% Loans and borrowings: long term 8.963 13.033-31.23% Total Liabilities 41.191 38.535 6.89% 44.019 Per share data 7UP Current Price 157.20 Trailing EPS 11.02 BVPS 31.64 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 3.03 3.22 3.18x 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
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Movements in Price Target Company Name: Seven-Up Bottling Company Plc Date Price (N) Previous Target Price(N) New Target Price (N) Previous Recommendation 04/02/2015 157.20 103.06 103.05 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
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
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