Futureview Sees 34% Upside in Guinness Nigeria

Futureview Sees 34% Upside in Guinness Nigeria

Equities analysts at Futureview Financial Service have estimated a 34% upside potential in Guinness Nigeria Plc. At the reference price of N80 per share, equities analysts Futureview set a target for the brewer at N109.5 with a buy recommendation.

At a market cap of N175.23 billion, the company’s share price has steadied at N80 over the last seven trading sessions despite upswings in the local bourse.

In the third of financial year 2023, Guinness Nigeria, one of the top brewers in Nigeria and a subsidiary of Diageo Plc, recorded weak earnings performance.

In a tough economic condition, the brewer was confronted by increased net finance costs, higher sales costs, and losses emanating from foreign exchange transactions, worsened by intense rivalry with other established brands gunning for tight consumer wallets.

In its unaudited financial result, the company recorded a 71.5% year-on-year decline in standalone earnings per share (EPS) to N0.84 versus N2.95 in the third quarter of 2022.

The sharp decline in EPS in the third quarter of FY2023 was driven by a weaker gross margin, higher operating expenses, and a steep jump in net finance costs. 

Guinness Nigeria’s gross margin dropped to 33.5% in the period from 41.1% it delivered in the equivalent period in FY2022. The company’s net finance cost rose to N2.17 billion from N202.82 million in Q3 of FY2022.

Its 9-month EPS settled at N2.68, a significant decline when compared with N6.98 achieved in the comparable period in 2022.

Guinness Nigeria reported revenue surged by 7.4% in Q3 FY2023, supported by price and mix optimization across its strategic focus brands – Guinness, Ready-to-Serve, and Spirits.

In addition, brewer sales surged due to resilient consumer demand and improved outlet coverage.  Guinness Nigeria continues to optimize its route to consumers. The steep contraction in gross profit margin reflects a 21.2% increase in the cost of goods sold in the period due to inflation conditions relative to 7.4% revenue growth.

Its operating expenses then remain elevated, growing by 21.1% year on year in Q3 FY2023, indicative of increased marketing investments to support its strategic growth priorities and target market share improvement.

Further down, a net finance cost of N2.17 billion was recorded in Q3 FY2023 as against a net finance income of N202.82 million in Q3 FY2022.

It suffered from exchange differences on the letter of credits, which jumped by 608.8% to N2.12 billion, and a higher loss on remeasurement of foreign currency balances, up by 716.3% to N3.19 billion.

Meanwhile, on finance income, there was a 13.4% reduction in short-term deposits in the period. In Q3 FY2023, profit before tax settled lower at N2.71 billion, representing a 71.5% year-on-year decline from N9.50 billion in the comparable period in FY2022.

Eventually, the brewer posted a profit after tax of N1.84 billion, which was a significant decline from N6.46 billion in the comparable period in FY2022 following an income tax expense of N866.42 million.

In its recommendation for the week, Futureview Financial Services said that considering many stocks are trading at an attractive discount, it expects positive sentiment in the market this week.

However, analysts note the attractive yields in the fixed-income space could serve as a distraction to investors. Profit-taking could also take a toll on market direction. #Futureview Sees 34% Upside in Guinness Nigeria Nigerian Treasury Bills Yield Rises to 7%