FREE

GUINNESS NIGERIA PLC - Neat margin performance, 9M’18 PAT outperforms

Guinness Nigeria recently released its 9M’17/18 financial results showing 17% y/y Revenue growth to ₦105.5 billion, modestly better than our ₦103.1 billion estimate. With gross margin coming in weaker than we had expected at 33% (Vetiva: 36%, Q2’17/18: 34%), gross profit was closely in line with our estimate at ₦11.6 billion. Earnings in the quarter were however strongly supported by impressive operating cost containment. Furthermore, GUINNESS recorded net interest income of ₦318 million in the quarter, compared to our ₦608 million net interest expense estimate, driven by gains on FX transactions in the quarter and a moderation in interest bearing liabilities. Thus, driven by a stronger EBIT margin (4.8% vs Vetiva’s 4.1%), 9M’17/18 bottom line beat our ₦4.3 billion estimate, printing at ₦5.1 billion – a strong recovery from the ₦2.6 billion loss recorded in 9M’16/17.

We revise our Revenue estimate 3% higher to ₦143.7 billion for FY’17/18, translating to a 14% y/y rise. We are impressed by the developments on the Operating Expense front noting the sustained downtrend in OPEX to sales ratio in the recent quarters – 22% as at Q3’17/18, lowest quarterly ratio since Q2’11. Driven by this, we cautiously revise our FY’17/18 forecast to 24% (Previous: 26%, 5-year average: 33%). Meanwhile we revise our FY’18 gross margin estimate 100bps lower to 34% following this quarter’s underperformance. Further supported by a downward review of our net interest expense to ₦3.0 billion (Previous: ₦4.0 billion), FY’18 profit after tax is forecasted at ₦7.9 billion (Previous: ₦6.7 billion, FY’17: ₦1.9 billion). Supported by this and a lower risk-free rate assumption, we revise our 12-Month Target Price to ₦89.70 (Previous: ₦78.76), SELL.