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Champion Breweries’ PAT rises by 142% to N1.076 billion in H1 2022



Champion Breweries

Champion Breweries Plc has announced its Unaudited Financial Results for the half year ended June 30, 2022, with a profit after tax of N1.076 billion compared to N445.23 in HY 2021 representing 141.60% growth year-on-year. Curiously, despite the impressive rise in earnings, the company’s net profit margin in recent periods hovers around 15% on average. In fact, in 2020FY, it was as low as 2.25%, but stood at 15.66% in H1 2022, representing a growth of 71%-on year.

Net profit margin measures the profitability of a company and a good net margin varies by industry, but a margin of 10% is considered average, while 20% and above is considered high or good. Comparatively, Champion Brew’s net margin is better than other key peers in the industry. For instance, in Q12022FY, Champion Brew’s net profit margin stood at 16.69% compared to Guinness’s 2.90% and Nigeria Breweries’ 0.78%

A cursory view at the financials shows that higher growth in cost of sales has been a major factor affecting the company’s bottom line. For instance, in HY 2022, revenue rose by 42%-on year to N6.862 billion, while costs of sales rose by 46% to N4.209 billion, broadly due to increased cost of raw materials, which is a major component of the company’s cost of sales. Cost of sales constituted 76% of total expense, while raw materials and consumables constituted 49% of cost of sales.

On the company’s balance sheet, total assets grew marginally by 6% year-to-date to N14.185 billion in HY 2022 compared to N13.487 billion in FY 2021. The low growth was caused by a dip in cash and cash equivalent, inventories and trade and other receivables notwithstanding the high growth in prepayment (99%).

Other key financial highlights

  • Net Operating Income stood at N1.512 billion in HY 2022, compared to N661. 3 million in HY 2021 (129% growth year-on-year)
  • Operating expenses was N5.454 billion in HY 2022, compared to N4.223 billion in HY 2021 (29% growth year-on-year)
  • Total Liabilities stood at N3.326 billion, compared to N4.267 billion as at December 2021 (-8.84% year-to-date growth).
  • Shareholders Fund was N10.294 billion, a 12% year-to-date increase relative to December 2021’s value at N9.220 billion.

Investment Perspective

Champion Breweries Plc operates in the NGX consumer goods sector and has been listed on the NGX since September 1, 1983. The company is currently the 40th most valuable stock on the NGX with a market capitalization of N31.3 billion, which makes about 0.115% of the Nigeria Stock Exchange equity market.

In terms of capital gain, Champion Breweries has gained 70.2% YtD. It started the year with a share price of N2.35 and closed its last trading on August 3, 2022, at N4 per share.

In terms of trading liquidity/volume, Champion is the 46th most traded stock on the NGX over the past three months; from May 4 to August 3, 2022. Within this period it traded a total volume of 75.9 million shares and YtD trading volume of 136,572,349 million (daily average volume of 955,051 shares). This average daily volume is good and may indicate that the stock is competitive. Also between July 29 and August 2, 2022, the stock has traded above the daily average volume; an indication of a price climax. So investors should be cautious because sharp price moves coupled with steep volume increases can often be a sign of imminent price reversal.

Also with a low free float, trading can be risky. Champion Breweries Plc as at June 30, 2022, has a free float percentage and value of 3.58% N104,769,443.86 respectively. Champion Breweries Plc as at June 30, 2022, has 7,829,496,464 outstanding shares; 96.41% of the outstanding shares are owned by Raysun Nigeria Limited (86.36%) and Akwa Ibom Investment (10.06%). This is not compliant with the NGX’s free float requirements for companies listed on the Main Board.

The NGX Rule Book; Rule 12:1 (4) (a) requires a minimum free float of twenty per cent (20%) of companies’ issued share capital; or (b) The value of its free float is equal to or above N40 billion on the date the Exchange receives the Issuer’s application to list. Free float, means the number of shares outstanding and available to be traded on a securities exchange.

Notwithstanding, the company has shown consistent growth in revenue and earnings at least in recent periods. Over the past one year, earnings grew by 142%. The company’s earnings per share grew by 142% to N0.14 from N0.06 in H1 2021. EPS is a good measure of a company’s profitability; it indicates how much money a company makes for each of its shares. Investors should note that they do not have access to the EPS; a portion of it may be distributed as dividend or a portion of it or all can be retained for expansion and growth and comparing EPS in absolute terms may not have much meaning to investors. But it is, when compared to share price, it helps determine the value of earnings and how investors feel about future growth. This gives rise to the price-to-earnings ratio and with the company’s price-to-earnings ratio (19.4x) compared to the peer average (17.3x), the stock is priced higher and so expensive.

With continued inflationary pressures and hike in interest rate, which are likely to impact on the cost of production and consumer demand, the company’s top and bottom lines are likely to be affected, thus may contract future margins and growth.

“The performance of the Company is subject to seasonal fluctuations as a result of weather conditions and festivities. The Company’s full-year results and volumes are dependent on the performance in the peak-selling season, typically resulting in higher revenue and profitability in the last quarter of the year. The impact from this seasonality is also noticeable in several working capital-related items such as inventory, trade receivables and payables,” says the company.

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