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GUINNESS NIGERIA PLC FY'18 - Expect bottom line recovery to persist in FY’19

Expect bottom line recovery to persist in FY’19                                                                                

GUINNESS FY’18 (year ended 30 June 2018) revenue grew 14% y/y to ₦143 billion, only slightly below our ₦144 billion estimate, with the growth driven by a 10% y/y increase in volumes for the period. According to parent company Diageo, beer sales grew by 15% y/y supported by sustained momentum in accessible beer brands as well as a recovery in Guinness stout which we believe were supported by a lower base in the previous year and strong activation drive in the football season. Meanwhile, the Spirits segment (accounts for 15% of revenue) also performed well within the period, with net sales up 28% y/y. amidst sustained marketing investments. However, noting the soft demand environment, intense competition and effect of the new excise duties, we expect FY’19 to be a tough year for GUINNESS’ topline ambition with the company’s seemingly weaker foothold in the value lager beer segment (which is estimated to account for 57% of the beer market) leaving it vulnerable in the near term.                                                                         

Amidst the earlier mentioned factors, we forecast a net revenue (ex-excise duties) figure of ₦142 billion for FY’19. Having revised our revenue estimate lower, our EPS forecast for FY’19 is revised to ₦3.67 (Previous: ₦4.74, FY’18: ₦3.06). With an estimated 60% payout ratio, we forecast ₦2.20 DPS for FY’19 (Dividend Yield: 2%). Overall, we revise our 12-Month Target Price to ₦83.10 (Previous: ₦89.70), SELL.