Heineken SA hangover for NamBrew

Jo-Maré Duddy – Severe alcohol sale restrictions in South Africa left Heineken SA punch-drunk and drained Namibia Breweries’ (NBS) profit barrel by about N$147 million for the six months ended 31 December 2020.

The locally-listed giant reported a net profit of N$170.7 million for its past half-year, a drop of 46.3% compared to the same six months in 2019.

NamBrew’s equity loss from its joint venture with Heineken South Africa exceeded N$89.6 million, compared to an equity profit of nearly N$77 million in the corresponding half-year in 2019.

“Heineken SA experienced severe trade restrictions during the reporting period, which impacted volumes as well as royalties and resulted in a revenue decrease for NBL of 18.5% to N$1.386 billion,” NamBrew said on Friday. The group’s overall revenue fell by nearly N$314.8 million compared to the corresponding six months in 2019.

PROST!

Despite the less frothy bottom-line, analysts locally praised NamBrew’s navigation of the stormy waters of the Covid-19 pandemic.

IJG Securities said NBS’ operations in Namibia performed “admirably” in the past half-year, adding that “the growth in operating profit was well above our expectations”.

NamBrew reported an interim operating profit of about N$344.03 million, up some N$4.4 million or nearly 1.3% year-on-year (y/y). Cirrus Securities noted that this was the group’s best interim operating profit since the first half-year of NBS’s 2019 financial year.

NamBrew total operating costs were about N$319.2 million or 23.5% lower at around N$1.04 billion. Lower costs were mainly driven by decreased input costs. However, employment costs also decreased by 6% y/y, “a notable achievement”, according to IJG. The analysts were equally impressed by a 51.8%-drop in maintenance costs as NamBrew did “most of their maintenance in house”.

Cirrus said NBS’ earnings decrease was a result of external factors beyond Namibia. “We believe that management did exceptionally well in Namibia to contain costs and increase volumes locally, albeit likely at a lower price point,” they added.

According to NamBrew, Namibian beer volumes increased by 1.5% on the back of strong consumer support and loyalty, with specifically Windhoek Draught showing “exceptional growth”.

The group added: “Beer volumes supplied to South Africa were down by 66.1% due to lockdown conditions and alcohol bans. Export volumes contracted by 15% with Tanzania and Zambia still performing well, also given a favourable exchange rate during the reporting period.”

PLEASED INVESTORS

PSG Namibia said investors will be satisfied with the 3.6% dividend yield at the current price.

NamBrew declared an interim dividend of 56c per share, an increase of 5.7% y/y. Cirrus said it was evident that the performance of Heineken SA didn’t impact NamBrew’s dividend strategy.

NBL said it expected steady performance for its core portfolio in the second half of the financial year, anchored by the Windhoek and Tafel branded beers.

“NBL will continue to focus on further innovation around brands, trade execution and operational efficiencies while we continue to support and adhere to all regulations and directives to reduce the spread of the Covid-19 virus. Once trade restrictions have been reasonably lifted, we expect our South African performance to stabilise and return to normality,” the group said.

Although trading conditions will continue to impact its business in the second half of its financial year, NamBrew “continues to be resilient and we remain committed to finding every growth opportunity possible while appreciating our role as an industry leader towards responsible and safe behaviour”, it added.

Namibia Breweries is listed on the Local Index of the Namibian Stock Exchange (NSX). It closed Friday at N$31.04 per share, 6.7% down from the end of 2020.

Both Cirrus and IJG currently have a “hold” recommendation on NamBrew, with a target price of N$33.81 and N$34.07 per share respectively.