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GUINNESS NIGERIA PLC FY'17 - Impeccable Q4 seals FY'17 bottom line recovery

Impeccable Q4 seals FY’17 bottom line recovery                                                                             

After a tumultuous first half, GUINNESS released its FY’17 results for the financial year ended 30 June 2017, reporting an impressive N1.9 billion profit after tax figure, much better than the N0.2 billion and N1.0 billion loss after tax expectation from Vetiva and Consensus Analysts respectively. Whilst bottom line was deeply in negative territory as at H1’17 (N4.7 billion LAT), a combination of sales and margin improvements drove a solid recovery in the second half (N6.6 billion). The Board of Directors declared a dividend of N0.64/share (FY’16: N0.50/share) – implying a dividend yield of 0.9% (Peer Average: 2.8%). We expect GUINNESS will continue to benefit from its expanded portfolio in FY’18 and forecast a 7% revenue growth to N135 billion in FY'18. Further supported by improvement in the cost environment, a less volatile FX environment and the brewer’s productivity agenda, we estimate a 213bps expansion in PAT margin and forecast N4.6 billion PAT for FY’18.                                                                 

Having closed its rights issue August 30th 2017, Guinness Nigeria PLC’s capital raise is nearing completion, with the listing of the shares scheduled to be completed in October. With an above average debt to equity ratio of 0.98x (Peer: 0.4x), management has earmarked the N40 billion rights for the repayment of debt obligations (c.N40 billion including bank overdrafts). If fully subscribed, we anticipate a 45% increase in shares outstanding to 2.2 billion. With interest cover estimated at 1.55x in the last three years, we expect a successful issue to reduce the interest burden sizably and raise PAT by an average 61% y/y through FY’22. Despite the higher shares outstanding post issue, we expect the capital raising to be mildly accretive in nature and estimate an average 10% y/y EPS growth within our forecast period.                                                                               

Guinness Nigeria PLC (GUINNESS) is Nigeria’s second largest brewer. GUINNESS’ brand portfolio includes premium Guinness Foreign Extra Stout, mainstream Harp Lager, Malta Guinness and Orijin. Parent company, Diageo owns a 54% stake in GUINNESS. In 2016, GUINNESS acquired exclusive rights to distribute Diageo's International Premium Spirits brands in Nigeria and brands from United Spirits Limited (Diageo's Indian subsidiary).