EUR 53.02 For Business Accounts Only

GUINNESS NIGERIA PLC FY'16 - Uphill battle for brewer

In line with guidance from parent company Diageo, GUINNESS reported a 14% revenue decline for its financial year ended 30 June 2016. Whilst the brewer continued to shore up volumes in its value segment (up 33% y/y) with strong growth in Satzenbrau, significantly lower volumes from mainstream brands (particularly Orijin and Harp), and underperformance in the premium segment (mostly Guinness Foreign Extra Stout) dragged topline. Amidst a fast evolving consumer landscape, star product Orijin (upper mainstream Ready-to-Drink brand) had a poor performance due to consumer down trading and increased competition. We recall rival NB and SABMiller introduced lower priced RTD Ace Roots and 1960 Roots respectively. Thus, the decline in revenue was as a result of overall weaker volumes and a lower price-mix from the faster growing value segment.

Whilst we note some staff cuts were implemented in Q4’16, we expect advertising and promotion costs to remain elevated in FY’17 as the company continues to support its brands in a highly competitive terrain. We also foresee more FX losses amidst further depreciation of the currency since 30 June 2016. As GUINNESS integrates the United Spirits Limited brands, following acquisition of production and distribution rights in 2016, we foresee higher capital expenditure in order to develop the brands and route to consumer. Thus, our FY’17 EPS estimate is revised lower to ₦0.39 (Previous: ₦2.25). Consequently, our 12-month target price is also revised downward to ₦76.81 (Previous: ₦88.22).

In line with guidance from parent company Diageo, GUINNESS reported a 14% revenue decline for its financial year ended 30 June 2016. Whilst the brewer continued to shore up volumes in its value segment (up 33% y/y) with strong growth in Satzenbrau, significantly lower volumes from mainstream brands (particularly Orijin and Harp), and underperformance in the premium segment (mostly Guinness Foreign Extra Stout) dragged topline. Amidst a fast evolving consumer landscape, star product Orijin (upper mainstream Ready-to-Drink brand) had a poor performance due to consumer down trading and increased competition. We recall rival NB and SABMiller introduced lower priced RTD Ace Roots and 1960 Roots respectively. Thus, the decline in revenue was as a result of overall weaker volumes and a lower price-mix from the faster growing value segment.

Whilst we note some staff cuts were implemented in Q4’16, we expect advertising and promotion costs to remain elevated in FY’17 as the company continues to support its brands in a highly competitive terrain. We also foresee more FX losses amidst further depreciation of the currency since 30 June 2016. As GUINNESS integrates the United Spirits Limited brands, following acquisition of production and distribution rights in 2016, we foresee higher capital expenditure in order to develop the brands and route to consumer. Thus, our FY’17 EPS estimate is revised lower to ₦0.39 (Previous: ₦2.25). Consequently, our 12-month target price is also revised downward to ₦76.81 (Previous: ₦88.22).