Despite impressive financial performance where International Breweries recorded 31.3 percent growth in revenue for nine month period ended 30th September, 2012, coupled with key expansion by the new core investors, SAB Miller, analysts at BGL Securities & Investment Limited said the shares of the company are currently over-valued.
The share presently trades at N21.72 per share
Consequently, they assigned the shares a target price of N13.56 per share, saying that the price was arrived at after due examination of the pricing of peers in the breweries sectors of other comparative emerging economies.
They said, “In arriving at our target price for International Breweries, we have examined the pricing of peers in the Breweries sector of other comparative emerging economies. While the average PE ratio for brewers in Sub-Saharan Africa is 19.82, it is 20.14 in Nigeria.
Peers of International Breweries Plc which include small and medium-sized brewers like “Tanzania Breweries limited is 5.34, Ivorien Soc Del Limonaderies Et Brass (5.36) and Guinea Ghana Breweries (21.05) have an average PE ratio of 17.09 while SAB Miller and Carlberg, the core investors in International Breweries have PE ratio of 17.22 and 14.00 respectively, International Breweries has a PE ratio of 88.56, which we consider expensive when compared to peers.
“Using the Nigeria industry ratio of 30.14, we arrived at a target price of N13.56, which reflects 37.56 percent downside potential on current price.”
They however, argued that the company has huge potential of increasing its revenue in the near term due to turn-around activities it is undergoing.
A peep into the nine months result showed a 31.3 percent increase in gross revenue to N9.06 billion from N6.90 billion in comparable period of 2011. Cost of sales grew by 7.3 percent to N4.75 billion in 2012 from N4.43 billion in the same period of 2011.
Pre-tax profits grew by 169.33 percent from N653.29 million in 2011 to N1.71 billion in 2012, while net earnings also increased by 102.7 percent to N1.28 billion from N653.29 million over the period.
The analysts observed, however, that better performance in the fourth quarter of the financial year could see the company grossing more than N12.00 billion in 2012.
“With the renaissance of International Breweries since 2011 after of a period of operational lull, management must make efforts to enhance the company’s brand visibility and expand its market scope from the seemingly western Nigerian market currently,” they counseled.