Nigeria Beer Makers Set for Profit Hit on Tax, Top Broker Says

LAGOS (Capital Markets in Africa) – Nigerian drinks producers including the local units of Heineken NV and Diageo Plc will see profit margins come under pressure after the government raises taxes on alcohol in June, according to the country’s biggest broker.

Beverage makers may also suffer a sales decline of about 3 percent if they raise prices to cover the extra cost, Christian Orajekwe, an analyst for the Lagos-based Cordros Capital, said in emailed response to questions. President Muhammadu Buhari approved the tax hike earlier this month to boost government revenue and counter health risks associated with drinking.

While the drinks makers will see a decline in earnings starting in the third quarter of this year, Lagos-based broker Chapel Hill Denham sees a gradual passing of the costs to consumers. That will ease the impact on businesses over the long term, according to head of equity research, Tajudeen Ibrahim.

Heineken’s Nigerian Breweries brews top-selling Star lager among other brands, while Diageo’s Guinness Nigeria Plc makes locally the Irish stout of the same name.

Source: Bloomberg Business News