Guinness Nigeria Rated BUY after Tough Close to 2020 Earnings

Guinness Nigeria Rated BUY after Tough Close to 2020 Earnings

Equity research analyst, Chinma Ukadike of Vetiva Capital Management limited has rated Guinness Nigeria share a buy after what the firm consider a tough close in 2020 earnings.

The brewer is expected to deliver a profit after tax of ₦1 billion, an upturn point when compare to N0.3 billion loss after tax in the comparable period.

As Nigeria’s economy opens up, more and more business activities and social engagements would combine to providing sales point for alcohol drinks.

The development is expected to support Guinness Nigeria’s products sales, though weak disposable income at household level remain a downside.

Based on the expectation of improve earnings, analysts projected a price target of ₦19.72 for Guinness Nigeria stock as against ₦15 reference price.Guinness Nigeria Rated BUY after Tough Close to 2020 Earnings

In the equity report, Vetiva analysts recognised that the brewer had a tough time in its earnings scorecard for 2020 after dealing with weak demand plus significant impairments in the last quarter.


In the fourth quarter of its financial year 2020, Guinness Nigeria recorded a 72% year on year drop in revenue.

This virus-induced below the belt performance plunged the company’s financial year end revenue by more than 21% to ₦104.4 billion when compared to previous year.

“We expect a much improved, albeit slow rise in volume rollout, following a gradual increase in patronage of bars and other alcohol sales point”, Ukadike stated.

As the coast is yet to be cleared for serious performance, Vetiva analyst expected 8.1% decline in the company’s revenue in the first quarter of its financial 2020/21 result.

Specifically, Guinness Nigeria first quarter revenue is expected to print at ₦24.7 billion.

In the equity note, Vetiva analyst also foresee a slight 0.6 percentage point improvement in gross margin to 30% in the first quarter, driven by ongoing spirit play strategy.

Vetiva noted that though Guinness Nigeria raised its borrowing by 45% between first and second quarter of 2020, interest expenses declined by 39% in the period.

“We expect that this will set the tone for the first quarter of financial year 2021. As such, we expect the company’s finance cost to remain stable in the first quarter of 2021”, Vetiva stated.

After a disappointing show, a slew of equities analysts cut down estimates on Guinness Nigeria Plc amidst rising cases of coronavirus pandemic that affected its earnings performance.

It would be recalled that before the outbreak of the virus, the brewery segment of the economy was ridden with increased excise duties, which thus affected the industry’s profitability.

It has been a survival of the fittest in the segment for some times now due to skyrocketed excise duties.

Meanwhile, increased competition has also been a pressure point as challengers brought extra capacity to the industry amidst declining disposable income.

For example, Nigerian Breweries continues to maintaining industry leadership while International Breweries encroached into Guinness Nigeria market share.

Meanwhile, naira devaluation worsen the case for operators with significant imports bills.

In 2020, analysts explained that Guinness was unable to liquidate inter-company foreign currency loan due to scarcity of FX.

The issue made analysts to remained downbeat on the size of foreign currency loans in the company’s balance sheet as they agree that naira devaluation could aggravate the exposure.

This means Guinness Nigeria may have to pay more in naira term. As expected, this would reduce its profits.

In its equity note, Chapel Hill Denham forecasted price target of ₦15.38 per share for Guinness Nigeria stock, though the market price has surpassed that region.

“Against our expectation, the company recorded a loss after tax of ₦12.58 billion compare with our forecast of ₦1.24 billion.

Therefore, it missed consensus expected profit of ₦256 million”, Chapel Hill explained.

Its loss was largely driven by Property Plant & Equipment revaluation loss of ₦11.72 billion which comprised impairment loss of ₦1.46 billion and write-off of ₦10.26 billion.

Then, equity analysts from ARM Securities Limited shed further light into the brewer’s performance.

According to ARM Securities, Guinness’ Q4:2020 result showed a higher than expected hit to their revenue numbers as it declined 72%.

Replaying the trend around the figure, analysts said this led to a steep contraction of 71% in their gross profit to ₦2.53 billion.

It was noted that ₦16.5 billion impairment charge booked over the period aggravated pressure on earnings, resulting in an operating loss of ₦18.05 billion.

However, analysts said tax credit received from government helped mitigate the loss in the quarter to ₦13.94 billion.

Excluding impairment, ARM Securities said  Guinness Nigeria loss would have been much lower at about ₦2 billion before the tax credit.

This the points to the impact the impairments had on the company’s earnings performance

“While we expect a swift bounce back for Guinness as economy gradually re-opens the risk from its foreign currency loan and an adjustment to our revenue projections necessitated a cut in our fair value to ₦18.94 from ₦26.63”, ARM Securities stated.

Read Also: ARM Securities Bullish on Bulge Balance Sheet Banking Stocks

Guinness Nigeria Rated BUY after Tough Close to 2020 Earnings


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