COMPANY OVERVIEW: Founded in 1919 and floating on the Casablanca stock market since 1943, Société des Brasseries du Maroc (SBM) is the leading Moroccan brewer with a market share of more than 95%. Its portfolio of activity includes beer (90% of consolidated sales in 2012), wine, bottled water and the Nicolas franchise retail network. Currently, SBM operates numerous industrial plants with a production capacity of more than 1,500,000 hl of beer (sales were 870,000 hl in 2012) and 120,000 hl of wine, and a mineral water production unit for Ain Ifrane with a capacity of 1,000,000 hl. The company’s capital is 66.5% owned by MDI, a company itself owned by Castel Group (75%) and SABM iller (25%).
Sales have been less strong than usual. In the first half of 2013, SBM registered a 13.4% drop in volume of beer sold: 394,534 hl versus 455,557 hl in H1 2012. This has driven a 9.4% decline in consolidated sales, which in turn has deeply affected margins. The firm’s earnings in that six-month period (before interest, tax, deductions, depreciation and amortisation) were down 22.9% on the previous year’s, and net income was down by 30.5%. Such a pronounced contraction was notably amplified by the negative impact of the group’s fixed expenses. This H1 2013 counter-performance is attributable mainly to the impact of the holy month of Sha'aban on beer sales in June, according to the company’s management. Other causes they cite are an unfavourable economic context and a dual hike in the domestic consumption tax and the cost of some raw materials.
STRATEGIC DEVELOPMENT: For 2013 as a whole, beer sales should decrease by 5.8% (versus -13.4% in H1 2013) thanks to a sales recovery of 2.4% in the second half of the year. Such under-performance has three causes. First, the aforementioned tax hike, which passed in May 2012 and went into effect in the first half of 2013, prompted the company to raise the price of beer. Second, in February 2013 a further 2% price increase was necessary to offset the pressure of higher production input costs on margins. The third factor was a destocking by some wholesalers and by Marjane, a hypermarket chain, following the closure of the alcohol section in 10 of its stores. The rise in selling price should, however, allow SBM to limit its drop in revenue to -1.1%, helping earnings before interest and taxes (EBIT) and net income, which stand respectively at Dh445m (€39,516; -10%) and Dh297m (€26,373; -10%).
In 2014, SBM is likely to do much better. No increase in the internal consumption tax is planned for 2014, and the holy months of Ramadan and Chaâbane fall outside the summer period in this year and beyond. Hence, the firm expects beer sales to recover and rise 3.8%, driving increases in revenues, EBIT and net income by, respectively, 4.1% (Dh2.48bn, €220m), 3.7% (Dh462m, €41m), and 3.8% (Dh309m, €27m).
We have a “buy” recommendation for SMB, with a target price of Dh2539 (€225.46) per share. In fact, SBM is one of our favourite stocks in consumer goods as we expect a gradual recovery of its beer sales starting in 2014, thanks to a stable fiscal framework – domestic consumption tax saw two increases between 2010 and 2013, but will see none in 2014 – and the gradual shifting of Ramadan and Châ abane away from the summer season. Over the 2013-17 period, the company should register an average annual revenue growth rate of 7%, enabling it to reach the threshold of 1m hl of beer sales by fiscal year 2016/17. This forecasted rebound in sales should also allow the group’s margins to recover to pre-2010 levels, with an estimated net margin of 14.8% in 2017, versus 12.3% in 2013.
Measured by consumption, Morocco’s beer sector still has very high growth potential. Moroccans drink less than three litres a year per head, compared to nearly 12 in Tunisia and a global average of 80. Such a low consumption rate, given Morocco’s young population and their changing lifestyle, should lead to strong sector growth in the medium to long term.
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