Operator in the Nigerian capital market has predicted that Nigerian Bottling Company (NBC) Plc will record a Profit After Tax (PAT) of N2.09 billion in the second quarter of 2008.
It also predicted that the company would record a turnover of N40.27 billion in the same period under consideration.

Specifically, NBC posted increases in turnover and After Tax Earnings of 10.23% and 11.71% respectively, in a comparison of its first quarter 2008 performance with its first quarter 2007 performance. The company has focused on strengthening its leadership in the soft drinks industry through category expansion.

NBC has been innovative with its products through the canning of its soft drinks and introduction of a new energy drink called Burn. NBC has also invested over the years in the upgrading and replacement of its equipments and infrastructure in order to increase its operational efficiency, as well as sustain the growth of the business. Competition in the Food and Beverage Sector has grown, with some previously private companies which embarked on private placements (e.g. Tantalizers) and preparing to be
listed on the Nigerian Stock Exchange.

According to Vetiva Capital Management Research Unit, capital market operator “We however recognize that NBC’s business structure differs from that of many of the other sector players. There are also many new entrants and rivals who are gradually increasing their market share in the consumer drinks and beverages products segment”.

The company’ profit margins stood  at 7 per cent  (PBT) and 6 per cent  (PAT) for first quarter  2008; both PBT and PAT margins remained unchanged as compared with corresponding periods in first quarter 2007. NBC’s trailing Earning Per Share (EPS) increased to N2.51 based on its first quarter ended March 2008 results, compared to N2.42 earnings per share as at December 2007 full year 2007.

“Our full year 2008 EPS forecast is N2.93 (we forecast full year ‘09 and full year ’10 EPS at N3.50 and N4.24 respectively, while a dividend per share of N0.90 is estimated for full year ‘08.

On valuation, Vetiva noted that NBC is currently trading at a Price Earning (PE) multiple of 25 times and a forward P/E multiple of 21times (relative to a sector and market average of 27 units and 39unit respectively).

According to Vetiva “ Applying the industry average P/E multiple of 27x to Nigerian Bottling Company Plc’s Trailing EPS of N2.51, gives an implied value per share of N67.83. Alternatively, on a forward basis, applying NBC’s forward EPS multiple of N2.93 to the Price to Earnings multiple of the company (NBC) of 25x, gives a share price of N73.05.Our assumptions for the target price computation based on the P/E valuation methodology are that:

(i) The market is made up of rational investors who have priced the company correctly at 25 times its earnings; (ii) Based on this when valuing the future earnings of the company, we apply the market’s pricing of the stock at 25 times to the projected earnings of the stock in the future to estimate the Company’s target price”.