Category Archives: Team Commentary

Team Commentary

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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Bidvest Namibia FY14 Initial Impression

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FY14 Initial Impression – Margin Pressure!

BVN released its results for the year ended 30 June 2014. The firm posted reasonable results in light of the difficulties the fishing division finds itself in. EPS fell 10.6% to 129.6cps and HEPS decreased 10.4% to 129.5cps, missing our forecast. However revenue came in exactly inline with our forecast at N$3.7bn, thus the earnings miss is attributed to weaker than forecasted margins.

From a segmental perspective “fishing” disappointed on trading profit level, while “services” disappointed on both revenue and trading profits and “food and distribution” surprised negatively on trading profits and margins.

Commercial businesses kept the boat afloat

While BVN managed to grow revenues by 10.4% y/y to N$3.7bn, mainly attributed to the T&C business and Freight and Logistics, cost of sales grew at 13.8% and operating costs by 36.9% to N$385.3m from the N$281.4m reported for FY13. The main cost booster came in the form of the quota rentals fees BVN had to pay up in order to counter the impact of their lower direct quota allocation.

Costs almost sunk the ship

Trading profit shrunk by 16.7% y/y to total N$501.3m. As usual, the fishing division supplied the largest chunk of trading profit, coming in at N$407.1m or 81%. This figure is 23.0% lower than the N$528.5m seen in FY13, despite the division’s individual revenue increasing by 4.6% y/y, reflecting depressed margins resulting from the quota rental fees. The fishing operations FY14 trading profit margin fell to 24.5% from 33.2% reported in FY13. Price regulations in the Democratic Republic of Congo and a general oversupply in the company’s traditional markets following importation restrictions implemented in Nigeria, led to an 18.6% average lower realised selling price in US$ for horse mackerel. The weaker Namibian Dollar offset the lower US Dollar price effect on revenue, but also had a significant impact on costs.

Contribution by Commercials

Food and Distribution contributed 4.9% of total trading profit (while contributing 32.9% to total revenue) and rose 15.8% to report a trading profit of N$24.6m, despite a drop in poultry sales as a result of price pressure caused by restrictions on imports. BVN reports that almost all businesses in the Industrial and Commercial Products divisions showed improvement in trading results. Projected activity in the oil and gas industry supported the Freight division.

Increased payout ratio

A final cash dividend of 39cps was declared, with the total dividend of 63cps for the year, thus the company cut dividends by 8.7% on FY13, with the payout ratio increasing to 54% from 53% before. Last day to trade is 5 September 2014 with the dividends payable 26 September 2014.

Valuation and recommendation

We are currently reviewing our BVN valuation model; and as such have left our forecasts and target price unchanged and retain our BUY recommendation, with an eye on the attractive dividend yield of 4.8% and the view that the worst is behind us. We will release a detailed report following management discussions.