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Company Research

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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FNB Namibia FY14 Initial Impression

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Solid earnings growth, broadly in line with expectations

FNB released solid results for the year ended 30 June 2014, with headline earnings per share beating IJG forecasts by 3.4%, an increase on 2013 HEPS of 28.2%. Basic earnings per share are up 29.3% to 297.7c. The company continues to look relatively cheap from a price-to-earnings ratio perspective, with this ratio now standing at 8.3x. Moreover, a full year dividend of 122cps, up 22% on the dividend distribution in 2013, puts the company on an attractive dividend yield of 5.0x.

Income from operations increased by 20.4%, to N$2.262 billion, driven by large increases in both non-interest and interest income. Net interest income increased by 15.5% (or N$153m) on the back of strong growth in average advances, of 18%. The net interest margin deteriorated slightly over the period, partially due to the tightening of the spread between the Namibian and South African interest rates, but also due to the increased duration of FNB’s funding base, thus putting the company in a strong position to benefit from future rate increases. Non-interest income expanded by 25.1% (or N$218m) on account of expansion in the use of electronic banking, predominantly.

Impairment losses remain low, currently at N$18.4 million, down from N$23.4 million in 2013. Non-performing loans decreased further, to N$141 million, just 0.9% of gross advances. This low level of non-performing loans, and thus impairment losses, is on account of the current low interest rate environment in the country, as well as prudent lending by the bank.

Cost control

Once again, FNB has shown notable increases in income while managing to contain costs with the result being a double-whammy effect on the company’s bottom line. Cost increases of 13.3% were seen during 2014, compared to the increase in income of 20.4%. As such, profit before tax increased by 27.7%, to surpass the N$1 billion mark for the first time. As such, profit before tax now stands at N$1.171 billion, while profit after tax stands at N$785 million.

Market Share

FNB continued to gain market share through FY14, with loans and advances increasing by 17.8%, relative to total PSCE growth of 15.4%. As such, total loans and advances are marginally below N$20 billion, compared to marginally below N$17 billion at year end, 2013. Thus, FNB’s loan book is gaining ground against that of Bank Windhoek, however the latter remains the largest book in the country at present (N$20.2 billion).

Valuation and Recommendation

The share delivered a fantastic 46.2% return through FY14, however, we continue to see great potential for further upside, as the share price remains relatively low from a PE multiple and DY perspective. Thus FNB remains one of our most preferred stocks on the local index, and thus we maintain our BUY recommendations on the share.

We are currently reviewing our FNB valuation model; and as such have left our forecasts and target price unchanged, pending discussions with company management. We will release a detailed report in due course, following these discussions.

 

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Oryx FY14 Initial Impression

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Oryx Properties Limited (Oryx) released its results for the financial year ended 30 June 2014, reporting 11.8% distribution growth to 148.0cpu from 139.5cpu reported for FY13, 3.5% above our estimate of 144cpu. Over the same period EPU increased by 99 percent, from 166.66c to 331.75c, largely on account of an increase in the fair value of investment properties. As such, the property portfolio is now valued, independently, at N$2.0 billion, up from N$1.506 billion as at end June 2013. HEPU rose by 8.9% to 162.16c from 148.9c in FY13 – above our estimate of 144.0c – with the surprise mainly attributed to slightly better than expected revenues, lower than expected vacancies and a lower than forecast cost of debt financing.

The company displayed another period of good operational performance, with net rental income increasing by 23.7% y/y to N$162.9m – in line with our estimate of N$164.0m, supported once again by above average occupancy levels (reported at 99.1%), increased revenues from the additional (11,000m2) lettable area at Maerua Mall following the completion of its extension, and the recently acquired Gustav Voigts Centre. Profits after tax jumped by 615%, mainly as a result of the N$74m fair value adjustments of investment properties.

Rental expense increased by 44.9%, from N$28.9m to N$41.9m on account of the increase in retail area as well as electricity and other municipal charges escalating at inflation-plus levels. This was, however, countered by improved recoveries from tenants.

Vacancies (as a % of lettable area) increased from 0.4% as at June 2013 to total 0.9% at financial year-end. This, however, was largely on account of an increase in the gross-lettable area over the period.

The distribution reported translates in a 12month distribution yield amounting to 8.22%, a decline when compared to the same period of 2013, and a premium to the comparable 10-year government bond. This trend makes the stock less attractive in an interest rate hiking cycle as bond yields are expected to expand further. The last date to trade for the distribution of 80.75cps is on 5 September 2013, with the payment date set for 26 September 2013.

We are currently reviewing our Oryx pricing model and will release a follow-up report upon further analysis and discussions with management, as such, we leave our target price unchanged for now. We continue to take note of the limited availability of NSX local stock, and thus retain our HOLD recommendation.

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