Author Archives: IJGResearch

Namibia CPI August 2014

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NamibiaNCPI AugustAnnual Inflation for August declined by 0.2 percentage points, to 5.4 percent as compared to 5.6 percent recorded a month earlier. On a monthly basis, the inflation rate increased to 0.3 percent from 0.2 percent. The annual decline in inflation was primarily on account of base effects, as well as price declines in a number of food category sub-items, and a decline in the cost of operation of personal transport equipment following fuel price decreases. On a monthly basis, the increase resulted from higher recorded prices in most groups comprising NCPI.

Over the past year the main drivers of inflation in Namibia were food and non-alcoholic beverage prices (up 8.6%), as well as the price of transport (up 7.1%) and education (up 8.1%). Only one NCPI basket category saw prices decrease over the year, namely communications (down 0.5%).

During August, however, annual food inflation saw a marginal decline of 0.4 percentage points, from 9.0% to 8.6%. This decline was largely driven by a month on month price decline in the sub-categories of oils and fats and vegetables.

Transport inflation declined from 8.5 to 7.1% between July and August, due to a decline in the fuel pump price during the month. Thus, the sub-component of operation of personal transport equipment, which contains fuel, declined by 2.2 percentage points, to 5.6% inflation year on year.

Pump_Prices_NamibiaFollowing inflation increases from November 2013 to June 2014 on account of a currency-depreciation pass-through to prices, lagged first round effects of this currency weakness appear to be abating, and the stronger currency from January to August 2014 appear to be causing prices to stabilise, albeit marginally.

Going forward, we continue to forecast average inflation of 5.7% in 2014, picking up to 6.3% in 2015. Additionally, as a result of strong growth in the Namibian economy over recent years, we are starting to witness demand driven increases in a number of administered and services prices, such as administered transport prices (taxi fares), education prices, property and rent prices, and utility prices (electricity, municipal costs etc.) Additionally, pervasive Rand and thus Namibia Dollar weakness continues to drive increases in the Namibia Dollar price of commodities relative to US dollar prices.

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Final National Accounts, 2013

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GDP Growth for 2013 revised up to 5.1%, from 4.4%

This afternoon the NSA released its final national accounts for 2013, following the release of the preliminary figures in Q1 of 2014.

What is immediately striking in this release is the magnitude of the change between the preliminary and final releases, as shown in the graph below. According to the statistics agency, these changes come about as the result of changes in methodology, designed to make the accounts more accurate.Slide2

As can be seen below, the changes stem from a number of sectors, with the overall effect of the change in figures being a revision of real growth from 4.4% in the preliminary accounts, to 5.1% in the final accounts. This 0.7 percentage point change represents a 16% revision in the growth figure for the year (noteworthy as well is the 120% change in the 2009 real growth figure, which takes the economy from a recession of 1.5% to expansion of 0.3%).

While we remain concerned about the constant changing of the national account figures, we do view the revision as positive when it comes to the accounts representing the reality on the ground (for 2013). Due to unprecedented levels of fiscal and monetary stimulus, coupled with a booming construction sector and abnormally high levels of FDI, we generally believe that growth figures for 2013 should have been higher than the previously reported 4.4%. The lower figures in 2010 to 2012 are, however, somewhat surprising.

We remain very bullish on the Namibian economy for 2014, however may tamper growth expectations marginally on account of base effects in the figures (no major change in real sector activity, however). We will review our growth forecast and carry out a more comprehensive report on the final national account figures over coming weeks.

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Namibia Breweries FY14 Initial Impression

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FY14 Results

Namibia Breweries (NBS) released results for the year ended 30 June 2014. The full year results reflect disappointing operational performance with operating profit down 9.7% y/y. Basic EPS rose 181.9% y/y to 99.5c, coming of a low base after the N$188m impairment to its investment in DHN Drinks (Pty) Ltd last year that resulted in a decrease in earnings per share in FY13. HEPS, however, is down 10.5% from 177.8c to 159.1c. The board declared a final dividend of 34cps, taking the total dividend for the year to 68cps,up 9.7% on last year, with last day to trade cum 21 November 2014.

Sales

Although NBSmanaged to increase local sales volumes, revenue fell by 2.8% y/y to N$2,316.9bn,with the contraction stemming from the migration of production volumes to South Africa.Total sales of goods, however, is down 3.0% y/y while royalty income rose 2.9%.Locally,sales volumes growth was seen across the board, led by Tafel Lager. Ready to drink (RTD)and soft drink sales recorded double digit growth compared to last year, confirming the market’s positive uptake of the Vigo soft drink.

In South Africa,total volumes produced by NBS and sold to theDHN Drinks joint venture (JV) decreased, with total beer and RTD volumes down 24% and 87% respectively, which according to management is according to plan. This resulted in the value of sales decreasing 29.2%%. Total beer volumes exported to Tanzania and Mozambique increased compared to the previousyear, thus showing good growth in volumes albeit from a low base. However, RTD volumes sold to export markets were down 36.0% compared to last year.

Export sales declined as a percentage of total sales of goods, falling to 45.9% from 61.3% a year ago. This means that local sales now outweigh exports.

JV losses and Operating Margin

The equity loss from the JV increased by 10.4% or N$11.3m, to N$120.3m, contributing negatively to the bottom line. NBS operating profit decreased 9.7% as a 2.8% decline in revenue was coupled with weaker operating margins. The operating margin decreased 1.5pps to 20.5%. In our view a fierce operating environment in SA has most likely resulted in lower margins and increased losses from the JV.

Cash Position

Cash flow from operating activities decreased significantly from N$481.3m to N$265.9m, down 44.8% from the prior financial year, to a total of N$55.9m, less than the dividends payable of N$70m. We are also concerned that available cash decreased significantly despite the fact that working capital was cash flow positive.

Valuation

We currently have a HOLD recommendation on NBS and looking forward we remain concerned about the increased competition in the local market after the construction of the SAB Brewery in Okahandja. However, we will update our forecasts and target price followingdiscussions with management and further analysis.

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