Earnings Report /
Nigeria

Guinness Nigeria: Q1 20 review: Very poor results; reiterate Hold

    Eronmosele Aziba
    Eronmosele Aziba

    Equity Research Analyst, Consumers

    Tellimer Research
    24 October 2019
    Published by

    Guinness recorded a net loss of NGN0.4bn in Q1 20 vs net income of NGN0.8bn in Q1 19. The weak performance was largely due to: 1) a weak trend for net revenue (down 4% yoy), reflecting much weaker export volumes and the second phase of excise duty hikes, which came into effect in July 2019; and 2) a surge in finance costs (up 117% yoy) as borrowings rose 6% yoy. Gross profit margins contracted c2.9ppts to 29.5% and EBITDA margins declined 2.7ppts yoy to 11.9%. The 75% yoy dip in export revenues reflects a high base in Q1 19, and the flattish qoq trend suggests minimal disruptions from the recent land border closure. The qoq trend for domestic revenues (down 11%) reflects the impact of sustained volume pressure as well as higher excise duties, which we believe was the major drag to qoq net revenue.

    We maintain our Hold with a TP of NGN 34.20 (ETR: 29%). We note that the high ETR is largely due to the dip in the stock price following the results, however, we maintain our Hold rating as we expect the stock's near-term performance to continue to underwhelm (following a 66% ytd decline) as investors react to the weak results. Furthermore, as highlighted in our recent Nigeria consumers report, we are bearish on medium-term earnings for Guinness due to expected cost pressure from the excise duty hikes and limited headroom for price adjustments from intense competition. The stock currently trades at FY 20 PE and EV/EBITDA of 56.7x and 9.0x, versus frontier peer average of 22.9x and 14.7x.

    Financial Summary (NGNmn)
     
    Q1 20
    Q1 19
    yoy
    Q4 19
    qoq
    Revenue
    26,899
    28,094
    -4.3%
    30,096
    -10.6%
    Cost of goods
    (18,954)
    (18,985)
    -0.2%
    (21,471)
    -11.7%
    Gross profit
    7,945
    9,109
    -12.8%
    8,625
    -7.9%
    Opex
    (7,383)
    (7,639)
    -3.4%
    (6,819)
    8.3%
    EBITDA
    3,193
    4,098
    -22.1%
    4,508
    -29.2%
    EBIT
    682
    1,660
    -59.0%
    1,969
    -65.4%
    Net finance income/(cost)
    (1,052)
    (432)
    143.8%
    (474)
    121.9%
    Net income (loss)
    (370)
    836
    -144.3%
    1,232
    -130.1%
    EPS (loss)
    (0.17)
    0.38
    -144.7%
    0.56
    -130.4%
    Total assets
    171,541
    160,793
    6.7%
    160,793
    6.7%
    Total liabilities
    82,851
    71,732
    15.5%
    71,732
    15.5%
    Total equity
    88,690
    89,060
    -0.4%
    89,060
    -0.4%
    Gross profit margin
    29.5%
    32.4%
    -2.9%
    28.7%
    0.9%
    EBITDA margin
    11.9%
    14.6%
    -2.7%
    15.0%
    -3.1%
    Source: Tellimer Research