Guinness Nigeria Climbs by 38% as Investors Weigh ‘Next Action’
Since notice of Diageo deal to exit Nigeria, Guinness Nigeria Plc has seen its market value climbing, crossing more than N153 billion in the stock exchange as of Friday’s close.
Guinness Nigeria Plc has become expensive on the trading floor of the Nigerian Exchange after Diageo, Tolaram shareholding transfer deal priced at N81.60 per share.
Diageo appears to lost interest in the brewer following Guinness Nigeria Plc.’s decision to stop importing its products starting from April, 2024. Sources said import halting has to be shifted as Diageo was not prepared to lose the distribution access, thus generating heat at discussion table.
Over the years, the local brewer has been under pressure from negative exchange rate fluctuation, most of which was driven by importation of Diageo products using Guinness as distribution channel in Nigerian market.
This commercial arrangement kept breaking Guinness Nigeria’s earnings performance but the steep devaluation of the naira break the camel’s back. Like many companies with FX liabilities, Guinness Nigeria Plc foreign currency exposures widened.
As part of bigger deals, management at Guinness Nigeria Plc has to extend the separation of the imported International Premium Spirit from its business to become effective in 2025.
MarketForces Africa reported that Guinness Nigeria Plc will continue to import and distribute Diageo’s Johnnie Walker, Singleton, and Baileys and others which are imported under its 2016 Sale & Distribution Agreement with Diageo plc until the transition process is completed.
The brewer gained about 38.5% in market valuation on the Nigerian Exchange, NGX, over the last seven trading sessions. Share price climbed to N70 from N50.55.
Investment analysts have started building overweight on the ticker on expectation that its price would continue to rise, thus creating steep upside potential for investors.
From N75.26, analysts at CardinalStone Securities Limited updated 12-month target price per share for Guinness Nigeria Plc to N85.69 and retain the buy rating.
The investment firm said the revision stems from the expectations of strong revenue growth through a margin-accretive selective portfolio play and margin protection via effective management of its foreign exchange exposures (increased local inputs and FX debt repayments).
In addition, analysts noted the potential upside from the synergistic benefits of the recent transfer of majority shares by the company’s parent company, Diageo, to Tolaram group.
In a regulatory filing, Guinness Nigeria told the Nigerian Exchange that Tolaram would acquire its majority shareholder interest in the company. Diageo controls 58.02% of the brewer’s shares outstanding in GUINNESS Nigeria Plc.
As part of the deal, Diageo agreed long-term license and royalty agreements for the continued production of the Guinness brand and its locally manufactured Diageo ready-to-drink and mainstream spirit brands.
Tolaram has no experience in brewer and most of the Singaporean companies are not listed. When the transaction is finalised in 2025, Guinness Nigeria is expected to remain on the Nigerian Exchange.
The market expects Tolaram to launch a mandatory takeover offer in compliance with local law requirements. Strong buying momentum has been driven by expectation Tolaram has to offer minority shareholders premium as mandatory takeover price to delist Guinness Nigeria Plc from the stock market.
Citing Securities and Exchange Commission rule, CardinalStone Securities Limited said the offer price in a mandatory takeover must be fair and at least equal to the highest price paid by the acquiring entity for shares in the target company during the 12 months preceding the announcement of the takeover bid. #Guinness Nigeria Climbs by 38% as Investors Weigh ‘Next Action’
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