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NIGERIAN BREWERIES PLC (NB) Company Description Nigerian Breweries Plc has established itself as a market leader in the breweries industry. The company produced its first beer under the brand of Star and since then has grown to own six brewery plants with the latest addition in 2006 in Ama Enugu State. The company, which is 54% owned by the Dutch brewer Heineken N.V. is committed to delivering the highest quality brands for its consumers in Nigeria. Some of its products include: Heineken Lager, Star Beer, Amstel Malt, Maltina and Legend Beer. The company is particular about corporate social responsibility, hence it is a foremost sponsor on a number of community related initiatives, and has established an educational trust fund scheme that aims at supporting education in Nigerian. In December 2008 they declared an interim dividend of N1.90k per share, this is apart from an interim dividend of N1.00 per share declared in September 2008 year. Valuation Summary Our target price for NB is based on two valuation methodologies; the Absolute Value method and the Relative Value method. On a relative value basis, NB is trading at 34.90% discount to its industry’s trailing 12month Price-to-Earnings (P/E) ratio of 20.40x yielding a price of NGN 61.27 January 07, 2009 RECOMMENDATION: BUY CURRENT PRICE: NGN 40.10 (06/01/09) 12 Mth. TARGET PRICE: NGN 60.52 FISCAL YEAR END: DECEMBER NSE symbol NB Sector Breweries 2008 Return -16.80% Year High N55.90 Year Low N28.61 Year Average N42.26 Shares Outst. (Thousands) 7,562,408.00 Market Cap. (Millions) N303,252.56 Median Traded Volume 1,527,589 Recent Financials Based on absolute value obtained from our Discounted Cash Flow (DCF) and Residual Income (RI), we derive an average price of NGN 59.76. Q3 2008 Q3 2007 % Change Turnover 102.363 77.496 32.09% PBT 26.045 17.959 45.02% Taxes 8.334 5.926 40.63% PAT 17.711 12.032 47.20% Our target price of NGN 60.52 is an average of the two methodologies. Outlook Our recommendation is to overweight NB in a diversified portfolio of equities over a one year investment horizon. In the long run, substantial scope for enormous growth in the country’s beer market and increased domestic demand mainly from Nigerian emerging middle class will boost the company’s market share and value. The company’s consistent dividend payout policy will to a large extent impact positively on its share as investors are always guaranteed of returns on their investments. However, NB Plc is faced with the risk that may arise from operational challenges due to poor infrastructure in the country—power and road. Rising cost of raw materials and keen competition from its closest peers in the brewery industry may also pose a threat to the company. These factors combined may reduce the company’s margin going forward. Ratios 12M EPS 3.02 12M P/E 13.28 12M P/BV 7.02 Current Div Yield 3.24 ROA 20.92% ROE 43.87% Page 2 Peer Analysis NB PLC GUINNESS 7UP NBC OPERATING PROFIT MARGIN 24.48% 22.85% 40.34% 37.69% ROA 20.92% 14.89% 5.63% 6.60% ROE 43.87% 33.79% 19.42% 13.88% 1.36 1.56 1.33 0.83 - 9.24 3.74 10.94 63.48% 62.08% 54.63% 12.38% CURRENT RATIO INTEREST COVERAGE DIVIDEND PAYOUT Nigerian Breweries Plc & NSE All-Share Index (Rebased) 60.00 50.00 40.00 NB 30.00 20.00 *NSE ASI 10.00 - * NSE rebased Disclaimer: Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The view and strategies described may not be suitable for all investors. Past performance is not indicative of future returns. The inclusion of past performance figures is for illustrative purposes only. Indices do not include fees or operating expenses and are not available for actual investment. Indices presented are representative of various broad base asset classes. They are unmanaged and are shown for illustrative purposes only. The analyst(s), who is( are) primarily responsible for this report, certifies(y) that the option(s) on the subject security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this report. Enquiries should be directed to Kenneth Brai, Charles Ujomu, Chike Obieme and Tochi Okoronkwo on [email protected] OR +234-1-2784130 ©ZENITH C APITAL RESEARCH