Guinness Nigeria Pampers Shareholders after Intoxicated Earnings Jump

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Guinness Nigeria Pampers Shareholders after Intoxicated Earnings Jump
Guinness Stout

Guinness Nigeria Pampers Shareholders after Intoxicated Earnings Jump

Guinness Nigeria Plc. pampers shareholders with a strong dividend payout after intoxicated earnings jump in its financial year 2021 scorecard. Its share price has remained relatively stable until the week when the company announced its annual general meeting, then the stock reacted negatively. Guess what? The breakdance isn’t peculiar to the brewer as Nigerian Exchange has been on the bloodbath in recent times.

Despite earnings jump, analysts remain tight putting Guinness on the buy list, probably because its industry still face some downside risks. Surprisingly, in what appears as a significant payout, shareholders are going to get 46 kobo out of 57 kobo earned by the company.

Guinness Nigeria Plc.’s better than expected earnings in the financial year 2021 excite the company’s shareholders after the lacklustre performance in 2020.

However, equity analysts are yet to switch their low ratings on the company’s stock with a number of hold and sell ratings hanging on the ticker after the earnings break last year. Broadstreet analysts still hoping to see dark clouds on the segment clearing before they bet large on the breweries industry.

Meanwhile, the management and the shareholders will be gathering at their annual general meeting, Guinness Nigeria said in a notice on the Nigerian Exchange on Thursday.

Following an improved outturn for the financial year 2021, the board of directors proposed to pay shareholders 46 kobo as a dividend from 57 kobo earned on each outstanding share; as the price closed at N30 at the local bourse on Thursday.

Last year, Guinness Nigeria destroyed value with a record N5.47 loss per share following the covid-19 induced economic pressures and naira devaluation which comes at the back of heightened inflation rate.

Ahead of its meeting with shareholders, the brewer hinted that if payment of the dividend is approved, it is intended that the payment will be made on October 20, to holders of shares whose names appeared on the register of members on September 28.

In its new estimate on the ticker, analysts at PAC Capital assigned N31.55 target price to Guinness Nigeria share, which is a few kobo away from the reference market price of N31 and advised clients to stay neutral – a hold rating.

“With the expectation of improved operating performance in the coming quarters, we may likely see a robust balance sheet and improved dividend payment going forward”, analysts at PAC said.

The brewer’s earnings recovery came rather better but there are still dark clouds given the weak macroeconomic indicators and heighten misery index in its largest market- Nigeria.

Apart from that, surging covid-19 delta variants and increased infection in Nigeria still pose a downside as measures to curb the pandemic spread are still ongoing. Analysts at PAC Capital attribute the company’s outturn to an improvement in the level of activities in 2021 after the Nigerian government reopened all the public and entertainment centres.

PAC said the reopening of bars, event centres, cinema, casinos, hotels, among others, reflected on the performance of Guinness Nigeria in the full year of 2020/21.

Figures from the result show that the company’s revenue expanded by 53.69% to ₦160.42 billion from ₦104.38 billion in the financial year 2020 due to improved demand and higher prices.

As the global economy began the healing process, there was an increased demand; notable in Premium Spirit, Mainstream Spirit, Guinness, Malts and Ready-to-Drinks (RTDs) but inflation pressures acted as a downside.

To mitigate inflation impacts on its production costs and maintain category margins, analysts hinted that the company increased prices across all the business categories during the period. Thus, the combined effects of increased prices and volume growth drove turnover.

According to the financial statement, Guinness Nigeria recorded a significant increase in the cost of sales in the period. The company’s cost of sales expanded 61.45% year-on-year to ₦114.71 billion driven by higher production volume and steep inflation rate.

This translated to a higher cost-to-sale ratio of 71.51% from 68.07% in the full year of 2020, attributed to a major challenge in the cost of inputs as both inflation and devaluation of naira impacted the company’s costs profile.

“With the depreciation of Naira in the FX market, relatively high inflation rate and improved demand for brewery products in the market, the cost of sales may continue to increase further in the coming quarters”, analysts said.

It was also noted that improved production volume reflected on the raw materials and consumables as it increased by 91.66% to ₦84.23 billion in the financial year 2021 from ₦43.95 billion in 2020.

According to analysts, raw material and consumables constituted about 53% of the brewer’s total cost of sales in the period.

In addition, the expenditure on administration, marketing and distribution increased by 11.29% to ₦36.56 billion in 2021 from ₦32.86 billion in 2019/20.  Nevertheless, the company recorded an operating income of ₦9.87 billion in 2021, coming from an operating loss of ₦12.83 billion in 2020.

On the back of a significant reduction in loans and borrowings during the period, Guinness Nigeria’s net finance cost fell by 3.29% to ₦4.10 billion in 2021. This was against the reported net finance cost of ₦4.24 billion in 2020. Consequently, the company delivered a profit before tax of ₦5.77 billion in 2021 from a loss before tax of ₦17.07 billion in 2020.

Its financials show a provision of ₦4.51 billion was made for tax during the period compared with 2020 ₦4.49 billion tax credit due to one-off tax charge as settlement of an old tax audit, analysts noted. Despite the higher tax provision, Guinness Nigeria reported a profit after tax of ₦1.26 billion in 2021.

PAC Capital considered this as a better development when compared with a loss after tax of ₦12.58 billion in 2020, translated to earning per share of ₦0.57 in 2021.

With the gradual economic recovery, all the business categories of the company experienced double-digit growth during the period: Guinness (+50%), Premium Spirit (+121%), Mainstream Spirit (+75%), Malts (+50%) and RTDs (+37%).

The upturned performance however failed to trigger buying interest in the company’s share as analysts at PAC downgraded Guinness Nigeria Plc. to a hold rating, saying, its forward estimates place the share price at ₦31.55.

The distribution of revenue showed that the Beer category contributed about 34% to overall revenue, the same proportion delivered by Malts, 22% from Spirits and 7% from Ready-to-Drink, the review note indicated.

A further breakdown of the company’s performance in 2021 shows that; of the total revenue reported during the period, ₦158.95 billion was generated within the country while ₦1.47 billion was generated outside the country.

Analysts explained that locally generated revenue was higher than ₦102.58 billion recorded in 2020 while sales from export show a decline from ₦1.80 billion in 2020.

“We expect the revenue of the company to continue to increase as we expect increasing economic activities to have a significant impact on the demand for brewery products. However, the capacity of the countries to improve vaccination and overcome the Delta variant of COVID-19 is a factor to watch”, said PAC analysts.

The total assets increased by 17.52% to ₦169.41 billion in 2021 from ₦144.15 billion in 2020, driven mainly by a significant increase in the current assets of the company. With an increase of about 580.47% in cash and cash equivalent, the current assets of the company increased by 438.47% to ₦74.74 billion in 2021 from  ₦53.97 billion in 2020.

However, analysts said the company’s total liabilities increased by 33.77% to ₦95.12 billion in 2021 from ₦71.11 billion in 2020, despite the significant reduction in loans and borrowings during the period.

The increase in total liabilities of the company was ascribed to a 93.07% increase in trades and other payables as the company continue to manage its account payables days. Analysts explained that this may be linked to the reduced leverage during the period.

Meanwhile, PAC spotted that the increase in total assets outweighed the increase in the total liabilities of the company and this resulted in higher net assets, which increased by 1.71% to ₦74.29 billion in 2021 from ₦73.04 billion in 2020. The improvement in the net assets of the company resulted in a higher net asset per share of ₦33.91 in 2021 from ₦33.34 last year.

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Guinness Nigeria Pampers Shareholders after Intoxicated Earnings Jump