NBL deemed strong brand

NBL deemed strong brand Namibia Breweries Limited (NBL) was this week deemed a strong brand by stockbroking firm PSG, which released its review of the brewer.

Namibia Breweries Limited has a very strong brand power. The industry has delivered compounded growth and is mature and competitive, with low switching cost. Management of NBL are pro-active, forward thinking and target driven. Return-on-equities [are] consistently above required returns and management have created value,” PSG said in its report.

Commenting on the state of finance, PSG said: “Revenue from export sales decreased from N$912 million in Financial Year 2015 to N$670 million in Financial Year 2016. We do not see this situation improving in the short term since the export countries'' fortunes are tied to the commodity prices which we expect to remain under pressure in the global slump.”

Namibia Breweries Limited, Heineken and Diageo formed a joint venture company, DHN Drinks Ltd, in South Africa in March 2004. Namibia Breweries has a 25% equity interest in the jointly controlled entity, effective 1 December 2015 and Diageo is no longer a shareholder. Following approval by the National Liquor Authority in South Africa, DHN Drinks Limited and Sedibeng Brewery Limited was merged into DHN Drinks which is now called Heineken South Africa.

Earning growth disappointed if the one-off items are taken out. The faster-than expected reduction in Joint-Venture losses bodes well for the future and we do expect to see profits there earlier than previously anticipated,” PSG said of the transaction.

“In the absence of local malting facilities, NBL imports 100% of its malted barley and hops requirements from suppliers in Europe where regular quality testing of raw materials is done by accredited laboratories before being shipped. NBL is predominantly dependent on imported raw material for the production and packaging of its beverages. Packaging material, which includes bottles, cans, cartons and shrink foil is imported from South Africa, whereas raw ingredients are imported from Europe. Malt, which is imported from Europe, is NBL''s single biggest cost element. There is significant currency pressure on these imported cost items, PSG said.

On economic conditions, PSG said: “NBL could beat our expectations if Namibia experiences a very good rainy season and most water concerns are addressed. If the economy recovers faster than expected and a recession is avoided it could boost revenue growth. The price can also be higher if the Joint-Venture turns a profit in Financial Year 2017. A more favourable exchange rate will also boost performance.”

PSG however also stated: “If the drought continues and economic conditions worsen this will place pressure on margins and revenue growth. Continued losses in the Joint-Venture will put pressure on Earning per Share.”

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