Guinness Nigeria: Earnings Rebound From Q1 Low Despite Weakening Margins

Yesterday, GUINNESS released Q2-17/18 results showing net profit of NGN2.09 billion (vs. NGN2.44 billion loss last year), driven by (1) continued revenue growth, (2) better margin, and (3) lower opex and finance charges.

The net profit was equally higher compared to Q1-17/18’s NGN41.4 million, but below our NGN2.70 billion estimate and consensus expectation of NGN2.8 billion.

Revenue grew by 11% y/y and 36% q/q, sustained by festive demand, strong marketing effort, and relatively higher prices. DIAGEO (GUINNESS’ parent company) stated in a press release recently that the group enjoyed positive price in Nigeria, and that mainstream spirits and value beer (Dubic precisely) recorded faster growth during the period.

Sales volume was reported to have grown by about 17% y/y over H1-17/18. Value beer (23% y/y), Guinness (14% y/y), Malta Guinness (6% y/y), and main stream spirits (22% y/y) recorded net sales growth in the first half.

While gross margin remained higher relative to the last financial year (+601 bps y/y), we are quite surprised by the 118 bps decline compared to the first quarter. Compared to our estimate, gross margin was lower by c.650 bps, and has weakened consistently since reaching record 55% in Q3-16/17, reflecting, as we stated in the Q1 note, growing contribution of value beer and inflationary pressure on key raw material input prices (Sorghum in this case).

On the positive, opex was lower by 12% y/y and was below our estimate by 25%. Admin and distribution expenses were lower by 25% y/y and 24% y/y respectively while marketing expenses increased (following focused campaigns on Guinness) by 20% y/y. EBITDA margin of 15.4% was reported, significantly higher y/y, but lower by 96 bps q/q.

Also worth highlighting is the 65% y/y decrease in finance charges, comprising NGN583 million loss (NGN857 million in Q2-16/17) on foreign exchange transactions and N374 million (vs. NGN1.9 billion in Q2-16/17) related to interest expense on loans and borrowings and overdraft facilities.

Compared to Q1, FX loss and interest expenses were lower by 74% and 77% respectively. Gross debt now stands at NGN12.5 billion post-Rights Issue, and the consequent reduced interest burden will remain supportive of earnings for the rest of 2018.

Continued growth in revenue and the savings on both operating and financing costs bode well for GUINNESS’ earnings in 2018.

However, continued weakening margins dampens earnings growth expectation from 2019, as the effect of low revenue and finance cost bases tapers. The stock has gained 20% YtD, and positive reaction to the result is expected. Our estimates are under review.

spot_img
spot_img
spot_img
spot_img

Hot this week

NAICOM Boss, Segun Omosehin, Extols Yetunde Ilori’s Leadership at CIIN, Reaffirms Commitment to Institute

L-R: Mr. Ekerete Ola Gam-Ikon, Deputy Commissioner, Finance and...

NAICOM Holds One-Day Training for Police Officers on Compliance with Compulsory Insurance Policies

The National Insurance Commission (NAICOM) has organised a one-day...

Stanbic IBTC Capital Wins Best Investment Bank in Nigeria at 2026 Global Banking and Finance Review Awards

Stanbic IBTC Capital, a subsidiary of Stanbic IBTC Holdings,...

Stanbic IBTC Bank’s Economic Forum Charts Nigeria’s Path through a Shifting Global Economy

L-R: Wole Adeniyi, Chief Executive, Stanbic IBTC Bank; Dr....

CBN: N100 Banknote Remains Legal Tender in Nigeria

The attention of the Central Bank of Nigeria (CBN)...

Topics

Renaissance MD, Tony Attah, Predicts Merger of Operators at Nigerian Content Lecture

The Managing Director of Renaissance Africa Energy Company Limited,...

Ecobank Mobile App Handles $1bn Transactions in 18 Months

The groundbreaking Ecobank Mobile App, a single, unified financial...

NPA CEO Pledges Increased Cargo Movement via Rail

Hadiza Bala Usman, Managing Director, Nigerian Ports Authority ...

Marriott Wins Starwood Hotel Fight with $14.4bn Bid

According to report by AP, Marriott won over Starwood...

Fidelity Bank Delivers Hope to Internally Displaced Persons in Benue State

Team Lead, CSR, Fidelity Bank Plc, Victoria Abuka (Left);...

NCDMB, Dangote Refinery Inaugurate Joint Committee to Deepen Local Content

The Executive Secretary NCDMB, Engr. Felix Omatsola Ogbe presenting...

Allianz Africa: 10 MBA Scholarships to Drive Sustainable Development

Coenraad Vrolijk Regional CEO of Allianz Africa Allianz Africa's commitment to...
spot_img

Related Articles

Popular Categories

spot_imgspot_img