Guinness Nigeria Q2 2020 Results Review: Maintaining Underperform Rating


Thursday, February 06, 2020   /02:39 PM  / By FBNQuest Research / Header Image Credit: Guinness Nigeria


-16% average cut to 2020-22E EPS

Guinness Nigeria's (Guinness) overall volumes picked up in Q2 2020 (end-Dec), with net sales up 4% y/y to N41.4bn and 5% ahead of our forecast. This was boosted by strong double-digit growth in the premium stout and mainstream spirits categories, as well as the price increases implemented late last year. However, gross margin widened by just 6bps y/y and was -326bps narrower than forecast because the price and volume upsides were mostly eroded by absorbed costs. Over the coming quarters, we see more cost pressure coming from this year's VAT increase.


In view of this challenge, management has hinted that it plans to tactically pass on the costs in the form of higher prices. However, this move will likely be constrained by an aggressive pricing strategy implemented by International Breweries in its bid to grow market share. Given these headwinds, we have modelled lower gross margins over the 2020-22E period, translating to an average EPS cut of -16%. Nevertheless, our new target price of N31.4 is -5% lower because we rolled over our valuation to 2021E.


Guinness shares are flattish year-to-date but have underperformed the broad market index by –4%. The shares are trading on a 2021E P/E multiple 15.7x for an average EPS growth of 25% in 2021-22E. From current levels, our new price target implies a potential upside of 4%. We however retain our Underperform rating given the challenges that we anticipate for the beer industry.


PBT down -10% y/y

Guinness' PBT decline for Q2 was largely driven by 6% y/y and 39% y/y increases in opex and net interest expense to -N9.2bn and -N573m respectively. Although gross margin widened by 6bps to 28.7%, this was not strong enough to offset the increases in opex and borrowing cost. On a sequential basis, gross margin contracted by -80bps q/q while opex increased by 25% q/q.


As such PBT fell significantly q/q. Q2 PBT of N2.3bn was -25% behind our forecast of N3.1bn, largely due to a -326bp negative surprise in gross margin.


Proshare Nigeria Pvt. Ltd.

 Proshare Nigeria Pvt. Ltd.

Related News

1.     GUINNESS Declares N1.32bn PAT in Q2 2020 Unaudited Results, (SP:N30.20k)

2.     GUINNESS Q1'20 Results: Lower Revenue and Higher Leverage Underpins Weak Operating Performance

3.     GUINNESS Declares N370.41m Loss in Q1'20 Results,(SP:N29.35k)

4.     Guinness Nigeria Plc Holds 69th AGM; Declares N4.03b Dividend

5.     GUINNESS Declares N5.48bn PAT in Q4 2019 Results; Proposes N1.52k Final Dividend (SP:N41:40k)

6.     Guinness Nigeria Q3 2019 Results Review: Underperform Rating Maintained

7.     Guinness Nigeria Plc Q3 19 - Intense Competition Bite Earnings

8.     GUINNESS Declares N1.67 bln PAT in Q3'19 Results,(SP:N54.00k)

9.     Nigerian Brewers -  NB Tops on EPS, GUINNESS Tops on PE Ratio As INTBREW Records Negative ROE

10.  GUINNESS Notifies of the Resignation of Mr. Paul Gallagher as a Non-Executive Director

11.   Guinness Nigeria Q2 2019 Results Review: Earnings Choked By Thinning Gross Margin

12. GUINNESS Declares N2.58bn PAT in Q2 2019 Results (SP:N70:00k)

13. Guinness Nigeria Plc Notifies on the Fire Incident at its Aba Logistics Centre

14. As Expected, GUINNESS Revenue Drops by -6.05% in Q1 2019 Results

15. GUINNESS Declares N835.66m PAT in Q1 2019 Results (SP:N80.60k)

16. Analyst Expectations Ahead of GUINNESS Q1 2019 Results For The Period Ended 30 Sep 2018

17. GUINNESS Announces Changes to its Board of Director

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Related News