Guinness Nigeria Plc

GUINNESS Nigeria: Vetiva, Afrinvest give opposing rating, same day

GUINNESS Nigeria: When equity research analysts at Vetiva capital credit a stock Buy rating, they mean that the brand has potential return in excess or equal to 15%.

Afrinvest, however, think that the stock should be reduced. This means that expected total return range from nil to negative.

Analysts at Afrinvest opinion remains that GUINNESS has no potential upside, as a matter of fact it might decline 10% over 12-month horizon.

What analysts at Afrinvest were saying is that aggressive exit or entry may not be appropriate due to stock fluctuation.

Meanwhile, in the last 70 years as a brewer, Guinness Nigeria Plc has been striving to find value for its shareholders.

In the stock market, investors currently think GUINNESS worth ₦40.303 billion on 2,190,382,819 shares outstanding traded at ₦18.40.

Thus, the company strongly bolster performance in the second quarter of (Q2) 2020, as both volume and sales jerked up significantly.

This was followed by stronger margins which lifted profit and then earnings per ordinary shares.

Unlike Vetiva, Afrinvest stock recommendation took another direction entirely. Analysts at Afrinvest recommended that investors should reduce position.

Analysts at Vetiva specifically stated that GUINNESS showed a stronger performance in its Q2 2020 results, coming off a loss position in Q1 2020.

The brewery giant reported significant growth in 54% quarter on quarter growth in topline to ₦41.4 billion. This translated to a 1% year on year growth in half-year topline.

So, in the first half (H1 2020), revenue grew, albeit marginally, to ₦68.3 billion as against ₦67.8 billion in the corresponding period.

“While we recognize that Q2 is usually their strongest quarter, given the festivities in the period, we specifically note management’s continued drive to strategically shift volume focus to the Spirit segment of the business”, analysts explained.

Explaining further, analysts stated that they observed definitive growth in contribution to revenue from the Spirit segment (+2ppts q/q).

This was driven mostly by Mainstream Spirits, as analysts held that Spirits now contribute over 19% to total revenue.

In addition to this, the company reported that they had increased prices across Lager, Beer and Mainstream Spirits.

These raises are following another round of excise duty increases in the Beer and spirit segments.

Excise duty on Beer has increased from ₦0.30/l to ₦0.35/l while duty on Spirits surged from ₦1.50/l to ₦1.75/l.

Analysts recall that management had back-pedaled on price increases -when excise duties were first increased –to maintain competitive pricing and market share and had taken a beating on Net revenues as a result.

However, even with the price increases across board, the company reported 56% year on year volume growth in the Mainstream Spirits segment for H1 2020.

“Although we have seen quite an impressive Q2 2020 performances, we slightly adjust our FY’20 PAT forecasts downward to ₦4.7 billion”, analysts at Vetiva stated.

Vetiva said whilst it has increased revenue forecast based on the expected price increases across the spirit and beer segments -adjusted for a balancing effect on volumes –there was a slight revisions to forecasted cost of sales.

The adjustment was made given that the H1 2020 run rate and cost of sales are expected to decline only 1% year on year as against 6% previously estimated.

Vetiva capital analysts dubbed Spirits as the brewer’s favored child.

“We still expect its contribution to revenue to hover above 20% for the period amidst still strong competition in the beer segment”, analysts added.

Meanwhile, given our outlook for increased inflation in the first half of the year, we make slight adjustments to our expectation for operating expenses, analysts stated.

Operating expenses is estimated to slow down by 3.1% to ₦30.62 billion compare with 7% initially projected.

Analysts however stated that they expect operating profit to grow slightly by 2% year on year to ₦8.3 billion.

Guinness Nigeria Plc engages in brewing, bottling and marketing of alcoholic beverages.

Its product brands include Johnnie Walker Black, Johnnie Walker Red, Johnnie Walker Blue, Baileys and Smirnoff Vodka.

Others are Orijin Bitters, Master’s Choice, Guinness Foreign Extra Stout, Guinness Extra Smooth and Malta Guinness.

It also has Malta Guinness Low Sugar, Harp Lager, Smirnoff Ice, Satzenbrau Pilsner Lager, Dubic Lager, Snapp, Orijin, and Top Malt.

The company was founded on April 29, 1950 and is headquartered in Lagos, Nigeria.

What do you think?

Which firm got it right? Two investment banking giants offering opposing recommendations is a common trend.

Now, Vetiva is bullish, Afrinvest bearish on the same stock, same fundamentals but different interpretation.

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