Guinness Nigeria Plc 6M 2019 - A differentiation play
- Following the release of the FH1 19 earnings, we paid a visit to the Guinness brewing plant in Ogba Lagos where we engaged the management of Guinness Nigeria Plc to understand the drivers of earnings over its half-year 2019 and get insight into the outlook of the firm over the rest of the year.
- No doubt, the ongoing contest for market share in the brewery sector has started taking a toll on margins for major sector players. This largely accounts for lacklustre earnings performance of Nigerian Breweries (NB) and Guinness over the past few quarters. However, beaming our lights on the sector, we noticed flashes of differentiation which points towards a soft landing for Guinness compared to NB. To buttress, while the industry rivalry is expected to drive an 88bps plunge in FY 18E gross margin for NB, the wider portfolio mixes of Guinness which harbors Spirits provides a partial cover for Guinness gross margin (FY 19E: -31bps YoY to 33.7%). More so, reflecting lower finance cost for Guinness after recent deleveraging on FCY debt using proceeds from rights issue, we see improved profitability for the brewer. Hence, whilst we have a SELL rating on NB, we see upside opportunity (19% upside) for investors in Guinness with FVE of N77.31 which translates to an OVERWEIGHT rating on the stock. On our numbers, GUINNESS currently trades at a P/E of 18.23x relative to 26.08x and 24.5x for NB and Bloomberg MENA peers respectively.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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