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GUINNESS NIGERIA PLC Q1'24 Earnings - Price increase sustains revenue growth

 

Cost of sales outpaces revenue growth. 
In Q1'24, GUINNESS saw an improved topline performance, reporting a revenue of ₦59.5 billion, representing a 13% increase y/y. This came as a result of sustained price increases. This was followed by a higher increase in costs of sales (19.6% y/y) to ₦41.4 billion. This led to gross profit margin dropping to 30% (Q1’23: 35%), bringing gross profit to ₦18.1 billion (down 10% y/y).

Cost containment proves effective
Operating expenses for Q1'24 amounted to ₦11.7 billion, showing a 10% decrease compared to Q1'23. The company's commitment to cost containment contributed to this reduction in operating expenses, resulting in an OPEX to sales ratio of 20% (Q1’24: 25%). Also, GUINNESS recorded a 114% y/y increase in other income (to ₦1.4 billion). Given lower OPEX to sales ratio and higher other income, GUINNESS reported a stronger EBIT performance y/y, with Q1'24 EBIT reaching ₦7.9 billion (up 33% y/y). EBIT margin expanded to 13%, indicating the company's ability to effectively manage costs and enhance operational efficiency.
Finance expenses for Q1'24 amounted to ₦4.6 billion, representing an 85% increase y/y. The rise in finance expenses is attributed to the Naira devaluation that took place in the Q4’23 period. Despite this increase, the company's strong EBIT performance helped mitigate the impact on the bottom line. That said, PAT for Q1’24 only fell by 6% y/y to print ₦2.6 billion.

TP estimated at ₦66.50
GUINNESS looks poised to deliver a profit in FY’24, and this will be a significant improvement from its bottom-line loss in FY’23. For turnover, we project a decent 2% growth to ₦234 billion, but a faster 7% growth for cost of sales to ₦161.5 billion. Thus, we expect a decline in gross margin for FY’24 to 31% (down 3ppts). However, we expect OPEX containment to continue, thus reducing OPEX by 12% to ₦51.8 billion in FY’24. This will bring EBIT up to ₦21.8 billion (+6% y/y). Finally, we do not project FX rates to decline sharply as they did in FY’23; so, finance costs are expected to come in lower at ₦9.5 billion (-82% y/y). All in, bottom-line for FY’24 is to print at ₦9.4 billion (FY’23: ₦18.2 billion in losses).