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Guinness Nigeria PLC Q1'21 Earnings - Revenue leap supports optimistic outlook

Double-digit growth across major segments push Revenue surprise For the first time in over 14 years, Guinness Nigeria PLC reported a ₦30.0 billion Revenue figure in its Q1’21 financial statements, which represents a significant 12% y/y growth. Although we had expected Revenue to rebound from its brutal slump in Q4’20 (₦8.4 billion), this figure outpaced our ₦24.7 billion forecast as we had predicted only a gradual return to topline normalcy. Revenue growth in the quarter was a mix of double-digit growths in its Spirits (both Mainstream and International Spirits), Brand Guinness and Malt segments. The earnings beat comes more as a surprise when we consider that the increased excise duty for the year (from ₦1.75/l to ₦2.00/l) was implemented in this quarter and more so, we had only begun to see a phased return of consumers to gatherings and casual drinking clusters. That said, we do not rule out the possibility of stronger pricing in the period. Looking forward, we do not see this momentum slowing especially in the next quarter – its strongest quarter. However, we note that the Lager business continues to dampen Revenue growth. Nevertheless, given the company’s commitment to deprioritize focus on its lager segment and to focus more on Spirits and Brand Guinness, we revise our full year Revenue expectation from ₦102.9 billion to ₦137.6 billion, representing our expectations of continuous expansion in economic activity and a possible price uptick especially in its Spirits segment. However, due to the recent unrest, several retail and wholesale stores may have been affected, thus, we expect that the rebuild time it may take retail outlets to recover and start trading activities, will dampen sales in Q2.

Expect margin growth on the back of stronger Revenue Supported by the stronger Revenue base, we expect stronger gross margin in Q2, and for the rest of the fiscal year. However, tempered by FX challenges on input costs, we forecast a mild 4ppt y/y growth in margin to 27% for FY’21. Despite the miss on our Opex forecast, we consider the festivities synonymous with the last quarter of the year and expect increased distribution to restaurants, clubs, bars and lounges. Thus, we slightly increase our expectation for the line item to ₦31.9 billion (previous: ₦24.8 billion). We expect the stronger cash position to limit the impact of finance costs for the year and project a 51% y/y decline in FY’20 Net finance costs to ₦2.1 billion. Overall, we project PBT and PAT of ₦3.8 billion and ₦2.6 billion respectively, resulting in an EPS of ₦1.19, a marked improvement from the loss-making position in the previous year.