Opaque is the Clearest Way to See Value: National Breweries
Beverage, National Breweries, Retail

It always pays to have a highly liquid big brother. Such is the case with National Breweries (NB) that has enjoyed outstanding performance in the last 5 years. A subsidiary to SABMiller, NB had the same concerns as its parent company which we covered here. But most threatening was the deterioration of the exchange rate which its Chairman Valentine Chitalu stated in the 2016 annual report was a source of concern as the company had a significant import bill for Shake Shake cartons in particular (note to self, open a company that supplies cartons to…). In addition, reluctance by Local Councils to enforce Statutory Instrument No. 72 of 2012 – the Liquor Licensing Regulation, which bans the production, transport and sale of alcohol in bulk containers made it very difficult in the competitive environment. However, the chairman is confident that their $30million modern Lusaka plant (the largest Chibuku investment in Africa) with bring good value for shareholders.


Although GDP growth in Zambia was also cited as a source of concern, the product the company makes appeals to mass market. Excise duty which has ranged from 8% to 10% over the last 5 years has had minimal impact on the company’s ability to generate increasing revenues. However, the rate of revenue increase has diminished from the high of the 2012-13 period which saw a 36% increase to a low 14% in the 2015-16 period. This is still impressive for a company faced with competition from homegrown products whose main ingredient is the ubiquitously grown crop – maize.


Operating profit slumped from 2016 on the back of increase administrative and distribution costs to 6%. However, on the one hand EBITDA was stronger at 15% whereas earnings margin on the other hand struggled to cross over the 10% barrier from past glory of >10% prior to 2015. Conversely, their commitment to capex saw a 40.5% increase in non-current assets which grew their total assets by the same percentage. This is indicative of investment in the company’s ability to continue generating revenue for some time to come.


Shareholders were pleased to receive a dividend in 2016 after a quiet 2015. They will also be pleased with the 5% improvement in their return on equity. However, they may need to be a bit more patient with their return on capital employed which fell from 32% in 2015 to 18% the following year. The company has no debt and however it’s pursing an aggressive current liability strategy that has impacted on its acid and quick ratios (ability to clear current obligations: inventory considered). Furthermore, they have improved their working capital by collecting receivables quicker although there has been a slight increase in their inventory and payable days. A larger latter is preferable though may raise supplier eyebrowsJ.



With new equipment being installed, they have built on their ability to meet the demand of the market. We anticipate the coming year will show signals of increased return on non-current assets as the company realizes optimum production. With regulation on their side, NB is poised for continued success in the opaque beer market production drives demand.

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