Guinness Nigeria Q3 ‘16: -N0.5bn PBT loss off 33% drop in sales yoy


Friday, April 22, 2016 6:36 PM / FBNQuest Research 

Event: Guinness Nigeria reports Q3 2016 (end-Mar) results

Implications: Marked downward revisions to consensus 2016 PBT forecast likely; market likely to react negatively         

Positives:  Opex declined by 17% y/y

Negatives: Guinness reported a pretax loss of -N449m on the back of a 33% y/y drop in sales

This afternoon the NSE published Guinness Nigeria’s (Guinness) Q3 2016 (end-Mar) results which surprised to the downside. While Q3 sales declined by 33% y/y to N19.8bn, the company reported pretax and after tax losses of -N449m and -N309m (compared with profits of N2.5bn and N1.8bn in Q3 2015) respectively. A gross margin of -259bps y/y to 44.8% also weighed on the results.  

Although a 17% y/y decline in opex provided a partial offset, the combination of weak growth on the topline and the y/y contraction in gross margin proved more significant and was the key driver behind the pre-tax loss. Thanks to a tax credit of N140m, the after tax loss narrowed to -N309m. Sequentially, sales were down 30% q/q. However, the pretax and after tax losses compare with PBT and PAT of N1.1bn and N809m in Q2 2016. Compared with our estimates, the results were weaker on all key headline items. While sales missed by 31%, we had modelled PBT and PAT of N1.2bn and N840m vs. the losses that the company reported on these lines.  

While consumer goods companies have been impacted by the macro-headwinds and a marked slow-down in consumer discretionary spend, the Q3 results validate our view that Guinness has been more impacted than its rivals. Apart from the challenging macro-environment, we believe that Guinness’ limited representation in the value category has been a major factor constraining topline growth. Although the wide market acceptance of “Orijin”, Guinness Nigeria’s herbal brand, supported topline growth in FY 2015(end-June), we believe that the marked slowdown in that category contributed to the weak growth on the topline. Given the challenges with sourcing transportation fuel in the last few months, it may also be that the company was faced with logistics / distribution issues during the quarter.    

In contrast to the y/y decline in sales reported by Guinness Nigeria, Nigerian Breweries’ (NB) Q1 2016 results which were published early this week showed that Q1 sales grew by 11% y/y. The weak y/y growth on the topline implies that Guinness most likely lost market share to NB during the quarter. We believe that the gross margin contraction y/y is reflective of fx pressures, particularly given that a number of consumer goods companies have reportedly been sourcing fx at a c60% premium on the parallel market.    

Guinness’ PBT is tracking well behind consensus full year PBT forecast of N5.4bn. Consequently, we expect to see marked downward revisions to consensus estimates and a negative reaction from the market. On our published forecasts, Guinness Nigeria shares are trading on a 2016E (end-June) P/E multiple of 38.9x for 43.3% EPS growth in 2017E. However, the double-digit earnings growth is due to base effects y/y. Guinness Nigeria shares have underperformed the index this year. They  have shed -18.6% ytd, compared with the -13.3% return on the index.

We rate Guinness Nigeria shares Neutral. Our estimates are under review.

Related NEWS

1.GUINNESS Records 83.4% Decline in PAT in Q3'16 Result,(SP:N99.84k)

2.Guinness Nigeria to pay fine of N11.4 million

3.GUINNESS to List N10bn Series 2 and Series 3 Commercial Paper Issues on FMDQ OTC Platform

4.Guinness Nigeria posts a weak Q2 2016 neutral rating retained

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