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Guinness Nigeria PLC H1'18 - Earnings momentum picks up in H1’18

Earnings momentum picks up in H1’18                                                                                 

Printing slightly ahead of Vetiva estimate, GUINNESS recorded a 19% y/y revenue growth in H1’18 to ₦71 billion. Unsurprisingly, the Q2’18 selling season contributed the bulk of this figure (58%) given the stronger beverage consumption recorded in the festive period. According to GUINNESS, this growth was supported by a c.14% y/y rise in volumes sold. This was mainly due to a lower base from the prior period (amidst an inventory reduction) and an expanded portfolio of spirits brands.                                                     

Whilst Management has guided on softer sales in the mainstream beer segment (c.70% contribution to beer volumes), we are optimistic for revenue in H2’18 given the mild topline outperformance and continued benefits from the expanded spirits portfolio. Thus, we revise our FY’18 revenue growth estimate to ₦140 billion (Previous: ₦135 billion) – translating to an 11% y/y growth. Meanwhile, volatility in gross margin despite modest stability in the cost environment remains a worrying feature; we lower our FY’18 gross margin estimate marginally to 35% (Previous: 36%). Our earnings estimates are however sizably supported by expectations of further decline in net interest expense (amidst the lower debt balance and noting that the H1’18 figure was bloated by FX losses), as well as a lower operating expenses forecast. Overall, we revise our FY’18 PAT to ₦6.7 billion (Prev: ₦5.3 billion, FY’17: ₦1.9 billion) – representing a 215% y/y rise. We revise our 12-Month Target Price higher to ₦78.76 (Prev: ₦71.96), and maintain a SELL rating.                                                                        

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 58% 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).