GUINNESS Plc: Analyst cuts price target by 38%, cites weak revenue performance

Guinness Nigeria recent earnings performance failed to impress analysts. As a result, the brewer share price was slashed by about 40% due to weaker revenue as Vetiva’s analyst maintained a buy rating.

Vetiva’s analyst Chinma Ukadike revealed that despite a promising outlook following its H1’19/20 results, GUINNESS Nigeria reported a weak 9M’19/20 performance.

The unaudited financial statement shows a 5.3% year on year revenue decline to ₦96 billion, which represent a 3.4% shortfall from ₦99.4 billion estimated by Vetiva.

Notably, analysts explained that the Q3’20 revenue dropped 5.3% to ₦27.7 billion, weakened by poor domestic and export sales.

“Like the other major beer producers, we note that GUINNESS recently took advantage of the VAT rate increase to implement a series of much needed price hikes in February.


“We estimate however that the higher prices could not make up for the fall in volumes in the quarter, likely due to the border closures and the start of lockdown protocols in March”, Ukadike explained.

According to the company, sales of Guinness, Dubic and Mainstream spirits continued to grow in the period, while Malta Guinness was the hardest hit by export restrictions.

Analyst said while the lockdown order has been lifted in many states, social distancing and curfew timelines are expected to further restrict beer and spirits consumption.

Vetiva’s analyst expects revenue to shrink further in Q4’20 by as much as 41.4% quarter on quarter culminating in a full year figure of ₦112.2 billion, translating to 14.6% year on year drop.

Impressively, Cost of sales in Q3 declined 25.9% year on year, faster than the decline in revenue, dragging down cost of sales for 9-month by 6.7% year on year.

Vetiva stated that on the part of the company, it foresees an increased collaboration with delivery merchants and online stores; fostered through an amplified push of can drinks.

If this happens, the analyst believes that it would support revenue while improving margins due to cheaper costs of aluminum can.

“With 9-month gross margin of 32.1%, growing 100 basis points year on year and beating estimate of 30.2%, combined with the expectation of reduced costs given lower energy prices, we expect a decent recovery from the pressure on revenue to manifest in the EBITDA margin and forecast a slight 1.8% decline in operating margin for FY’20”, Vetiva stated.

Vetiva stated in the equity note that FX losses darken Q3’20 performance.

It explained that in a surprising turn, GUINNESS’ finance costs in Q3 jumped considerably, at 1.6 times the previous quarter and 5 times of the previous year.

The jump was majorly driven by a ₦1.4 billion loss on foreign exchange balances.

Although, Vetiva noted that the company has taken steps to restructure its loans in this quarter.

However, analyst expects the continued pressure on foreign exchange to overshadow this lower interest rates and negatively affect their interest expense for the full year.

That said, Vetiva’s analyst said he expects earnings before tax (EBT) to decline by 68.2% year on year for 2020 as against 68.9% in 9-month 2020.

Estimates adjusted

Guinness profit after tax (PAT) for the 9-month period printed at ₦1.36 billion, which represent a 69.3% year on year decline.

For the Q3, PAT settled at ₦46 million, which represent a drastic 97.5% year on year decline from comparable period

“Looking forward and adjusting our estimates accordingly, we expect the company to declare a ₦1.53 billion for 2020.

This represent a 72% year on year drop. This deliver a target price of ₦26.85 per share and an EPS of ₦0.70 compare to ₦2.50 in financial year 2019.

GUINNESS Plc: Analyst cuts price target by 38%, cites weak revenue performance

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