Analysts Overweight on Guinness Nigeria over Strong Upside
On expectation of strong potential upside, analysts at CardinalStone Securities have revealed plan to begin to build an overweight position on Guinness Nigeria Plc.
Following notice of acquisition of Diageo 58.02% interest in the Brewer, its share price has continue to skyrocket on the Nigerian Exchange. The company’s valuation has surged about 33% in the last seven trading sessions on the Nigerian Exchange, according to data gathered from the local bourse on Thursday.
Before the notice of decision to exit its position, Diageo controlled 58.02% of entire share outstanding of Guinness Nigeria Plc on the local bourse. The company has 2.19 billion outstanding currently priced at N69 per share in the market, gaining 2.75% during the intraday trading session, from N66.25 yesterday.
“In light of potential upside expectations from the acquisition of a majority stake in GUINNESS by Tolaram group and the subsequent momentum in the ticker, we would begin to build an overweight position in the stock this week”, CardinalStone Securities Limited told investors yesterday.
In the third quarter of 2024 earnings result, Guinness Nigeria grew revenue by 43.8% year on year, driven by higher selling prices, improved product offerings, and a sustained focus on premium segments amid subdued consumer spending.
However, challenges persisted, notably marked by the substantial decline in gross margin and unrealised FX losses due to the naira devaluation.
Despite these challenges, analysts said they maintain a positive medium-term outlook for GUINNESS, supported by improvements in its Total Beverage Alcohol Strategy.
“Over the medium term, we project an average revenue growth of 14.4%. However, we anticipate gross margin will decline by 140bps year on year to 32.7% from 33.5% due to elevated cost pressures”, Cordros Capital Limited said in an update.
Analysts anticipate the brewer’s debt-capital ratio to remain stable at 0.5x in 2024 and the debt-to-equity ratio to improve slightly, declining to 1.0x in 2024.
This improvement is driven by a projected 40.2% decrease in short-term borrowings to N38.13 billion. However, the equities balance is expected to decline by 32.6% to N42.55 billion due to negative retained earnings resulting from foreign exchange losses on foreign currency-denominated trade payables and intercompany loans. NDDC, Afreximbank Collaborate on Niger Delta Development
