Snapshot:

• 14% revenue growth in FY’18 supported by higher volumes 

• Sharp rise in PAT supported by operating and finance cost containment 

• Board proposes N1.84/share dividend (FY’17: N0.64) 

• Excise duties, intense competition set to weigh FY’19 topline, margins 

Healthy revenue growth driven by stronger volume momentum 

03 August 2018 : GUINNESS FY’18 (year ended 30 June 2018) revenue grew 14% y/y to N143 billion, only slightly below analyst's N144 billion estimate, with the growth driven by a 10% y/y increase in volumes for the period. According to parent company Diageo, beer sales grew by 15% y/y supported by sustained momentum in accessible beer brands as well as a recovery in Guinness stout which analysts believe were supported by a lower base in the previous year and strong activation drive in the football season. 

Meanwhile, the Spirits segment (accounts for 15% of revenue) also performed well within the period, with net sales up 28% y/y. amidst sustained marketing investments. However, noting the soft demand environment, intense competition and effect of the new excise duties, analysts expect FY’19 to be a tough year for GUINNESS’ topline ambition with the company’s seemingly weaker foothold in the value lager beer segment (which is estimated to account for 57% of the beer market) leaving it vulnerable in the near term. 

Earnings recovering as deleveraging pays off 

Reflecting inflationary pressure on GUINNESS’ input costs, gross profit for FY’18 stayed flat y/y at N48.6 billion despite the 14% revenue growth for the period. Nonetheless, notable productivity gains across its distribution channels and continuous OPEX containment supported a 31% y/y rise in Operating Profit, though behind the 46% rise analysts had expected. 

The strongest boost to earnings however came from a 54% y/y decline in net interest expense (FY’18: N3.4 billion, Vetiva: N3.0 billion), an effect of the deleveraging done earlier in the year. As such, FY’18 PAT came in at N6.7 billion (Vetiva: N7.9 billion), a sharp rise from N1.9 billion recorded in FY’17 and a continuation of its bottom line recovery following the 2016 slump (LAT: N2.0 billion). 

FY’18 earnings estimates, TP revised upwards on outperformance 

Amidst the earlier mentioned factors, analysts forecast a net revenue (ex-excise duties) figure of N142 billion for FY’19. Having revised analyst's revenue estimate lower, their EPS forecast for FY’19 is revised to N3.67 (Previous: N4.74, FY’18: N3.06). With an estimated 60% payout ratio, analysts forecast N2.20 DPS for FY’19 (Dividend Yield: 2%). Overall, analysts revise their 12-Month Target Price to N83.10 (Previous: N89.70), SELL. 

Business Description 

Guinness Nigeria PLC (GUINNESS) is Nigeria’s second largest brewer. GUINNESS’ brand portfolio includes premium Guinness Foreign Extra Stout, mainstream Harp Lager, Malta Guinness and Orijin. Parent company, Diageo owns a 58% stake in GUINNESS. GUINNESS in 2016, acquired exclusive rights to distribute Diageo's International Premium Spirits brands in Nigeria and produce brands from United Spirits Limited (Diageo's Indian subsidiary). 

Reporting for EasyKobo on Monday , 03 August 2018 in Lagos, Nigeria

Source: Ifedayo Olowoporoku from Vetiva Capital Management Limited