Wednesday, September 21, 2016 9:24am / FBNQuest Research
Event: Guinness Nigeria reports Q4 2016 (end-June) results
Implications: Marked downward revisions to consensus 2017 PBT forecast likely; market likely to react negatively
Positives: No obvious positives
Negatives: Guinness reported a pretax loss of -N4.4bn largely driven by a 3.1x increase in net interest expense
Late yesterday, the NSE published Guinness Nigeria’s (Guinness) Q4 2016 (end-June) results which showed that the company reported a pre-tax loss of –N3.6bn in Q4 2016. Broadly speaking, the results were weak across all key headline items.
Although a combination of factors including a -4% y/y decline in sales to N32.4bn, a gross margin contraction of -939bps y/y to 35.7% and a 6% y/y rise in opex all contributed to the pre-tax loss, a 3.1x spike in net interest expense was the major driver. Further down the P&L, the after-tax loss narrowed to -N2.9bn, thanks to a tax rebate of N671m. Sequentially, sales grew by 64% q/q.
However, this is not surprising as the Q4 quarter is typically stronger than Q3 due to seasonal trends. Although Guinness also reported losses in Q3 2016 (end-Mar), the pre-tax and after-tax losses are significantly larger than the losses of -N449m and –N309m that it delivered in Q3 2016 (end-Mar). Compared with our forecasts, sales beat by 21%. We had also forecast PBT and PAT of N1.5bn and N1.0bn compared with the pre-tax and after-tax losses delivered by the company.
On a full year basis, sales fell by -14% y/y to N102bn. The company also reported pre-tax and after tax losses of –N2.3bn and –N2.0bn vs. PBT and PAT of N10.8bn and N7.8bn in FY2015. Relative to our forecasts, sales beat by 6%. However, the company surprised negatively vs. our PBT and PAT forecasts of N2.7bn and N1.9bn respectively. The full year numbers also came in behind consensus 2016 PBT forecast of N2.5bn
Using Nigerian Breweries (NB) as a read-across, we believe that the spike in net interest expense is most likely related to exchange rate losses (related to raw materials imports) driven by the downward movement of the naira to around N282 per US$ in June 2016 vs N199 previously, following the central bank’s adoption of a more flexible fx regime.
However, we would be looking to get more clarity on this line on the company’s conference call which is slated to hold later today. As for the topline, we believe that growth was adversely impacted by consumers down-trading away from mainstream brands to value brands due to Guinness’ limited representation in the latter category.
Given the weak results, we expect to see marked downward revisions to consensus 2017E PBT forecast and a negative reaction from the market. On our published forecasts, Guinness Nigeria shares are trading on a 2017E (end-June) P/E multiple of 70.9x for an 18% decline in EPS in 2018E.
These compare with the 32.6x multiple for 12% EPS growth that rival Nigeria Breweries is trading on. Guinness Nigeria shares have underperformed the index this year. They have shed -16.9% ytd, compared with the -1.5% return on the index.
We rate Guinness Nigeria shares Underperform. Our estimates are under review.
Guinness Nigeria Q4 2016 (end-June) results: actual vs. FBNQuest Research estimates (N millions)
1. GUINNESS Declares N2.02bn Loss in 2016 Audited Result SP N100.00k
2. GUINNESS Records Unimpressive Q3 Result Downgraded to Underperform
3. GUINNESS Records 83.4 Decline in PAT in Q3 16 Result SP N99.84k
4. Guinness Nigeria to pay fine of N11.4 million
5. Guinness Nigeria Q3 ‘16: -0.5bn PBT loss off 33% drop in sales yoy
6. GUINNESS Records 83.4 Decline in PAT in Q3 16 Result SP N99.84k
7. GUINNESS Records 83.4 Decline in PAT in Q3 16 Result SP N99.84k
8. GUINNESS to List N10bn Series 2 and Series 3 Commercial Paper Issues on FMDQ OTC Platform
9. Guinness Nigeria posts a weak Q2 2016 neutral rating retained