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

Proshare

Friday, October 26, 2018 / 01:52 PM / Proshare  Research

 

The awaited Guinness Nigeria Plc Q1 2019 results for the period ended 30th Sept, 2018 has now been officially released yesterday. (See Q1 2019 results here - GUINNESS Declares N835.66m PAT in Q1 2019 Results (SP:N80.60k)) 

Just in line with analysts’ expectations, its revenue declined by -6.05% from N29.90bn in Q1 2018 to N28.09bn in Q1 2019 which reflected the envisaged drop in volume due to the implementation of the new excise duties regime as well as the increased competition witnessed in the sector. 

Find below an updated review of expectations table with the reality of Q1 2019 results

 

Market Analysts Expectations on GUINNESS

Analyst firm

Positive

Negative

Expectations

Reality

Cardinal Stone

 A holistic view of GUINNESS FY’18 financial scorecard gets the nod from us. We welcome the development of the healthy balance sheet of the company, even as total borrowings declined by 60.1% YoY to N13.7 billion.

We note the slowdown in revenue growth in Q4’18, as sales grew by a meagre 4.0% YoY (vs. Q1’18, Q2’18 and Q3’18 growth of 29.9% YoY, 11.5% YoY and 15.0% YoY accordingly). In our opinion, the brewer likely hiked prices in the quarter, which coincided with the new excise duty rates which kicked off in June. We believe the increase in prices might have pressured volumes growth, particularly in the mainstream beer segment which has been a driver of growth in the past quarters.

Given the introduction of the new excise duties rates amidst still weak consumer wallets, we are of the opinion that the company might start the new financial year on a rocky note. In its Q4’18 figures, we observed intense rivalry which resulted to drop in volumes, amidst higher pricing. It is our view that GUINNESS has to be more intentional on direct cost savings to drive earnings in the coming quarters, as we expect tougher competition in the brewery space particularly among mainstream lager products.

As predicted, the volumes actually dropped. This is reflected in the sales figure as its revenue dipped by -6.05% from N29.90bn in Q1 2018 to N28.09bn in Q1 2019.

 

The company is yet to find a way to save or reduce its cost of sales as it remained highly and very close to previous quarter’s figure, at N18.98bn in Q1 2019 (N19.53bn in Q1 2018),

Investment One

Comparing FY 2018 to FY 2017, revenue improved by 13.5% largely on account of volume, particularly in the value segment. According to the parent company, Diageo, the beer segment grew 15.0% y/y with continued strong growth in its Dubic brand. Furthermore, there was support from its Guinness brand with volume up 24.0% y/y in the year while the spirit segment recorded 28.0% y/y, largely on account of double digit growth in mainstream spirit brands.

Q4 2018 y/y revenue growth was slowest since Q4 2016 (11.5% higher than our estimate). We suspect the moderation in top line performance may be a reflection of the intensified competition in the brewery industry following the consolidation and expansion of International Breweries. The result was weighed down by input cost pressure, which more than offset the reduction in operating expenses as well as the benefit of deleveraging.

Going forward, we are of the view that top line growth may be limited due to the inability to take price increases as a result of increased competition in the sector as well as the implementation of the increased in excise duties. While revenue growth may see support from potential drive to absorb part of the excise cost to grow volume, we highlight that this in addition to the expectation that value brand may be the major driver of topline in the near term, may negatively impact gross margin performance. However, we expect the company’s operating efficiency and improved financial leverage to be supportive of bottom line performance in the near term.

As stated above.

Vetiva

GUINNESS FY’18 (year ended 30 June 2018) revenue grew 14% y/y to 143 billion, only slightly below our 144 billion estimate, with the growth driven by a 10% y/y increase in volumes for the period.

Reflecting inflationary pressure on GUINNESS’ input costs, gross profit for FY’18 stayed flat y/y at 48.6 billion despite the 14% revenue growth for the period.

Noting the soft demand environment, intense competition and effect of the new excise duties, we expect FY’19 to be a tough year for GUINNESS’ topline ambition with the company’s seemingly weaker foothold in the value lager beer segment (which is estimated to account for 57% of the beer market) leaving it vulnerable in the near term.

As stated above.

Cordros capital

Revenue grew y/y and q/q during the period,

Q4-18 performance (for the period ended June 2018) was not impressive, and will likely result in negative reaction to the stock in today’s trading.

We have a SELL rating on the stock as at our last update.

Its share price has dropped by -14.26% YTD as at Oct 25, 2018.

FBNQuest

sales grew by 4.0% y/y and net interest expense and opex declined by -24% y/y and 7% y/y respectively,

Guinness’ Q4 2018 (end-Jun) results showed that PBT and PAT declined by
60% y/y and 64% y/y to N2.1bn and N1.6bn respectively.

Guinness shares have outperformed the NSE ASI this year (-4.3% vs.-10.1% NSE ASI). The shares imply a potential downside of - 18.4% from current levels. As such, we retain our Neutral rating on the stock.

Its share price has dropped by -14.26% YTD as at Oct 25, 2018.

Source: CardinalStone, Cordros Capital, FBNQuest, Vetiva

 

Find out more information, Click here to access GUINNESS’s IR Portal in Proshare Markets


 Proshare Nigeria Pvt. Ltd.

Guinness’ revenue dipped by -6.05% from N29.90bn in Q1 2018 to N28.09bn in Q1 2019 as against 13.55% growth in turnover from N142bn in 2018 audited results to N125.9bn in 2017 while its PAT also improved by 249.17% from N1.92bn in 2017 to N6.72bn in 2018. 

The latest Q1 2019 results truly reflected that expectations of analyst from CardinalStone that the company ‘might start the new financial year on a rocky note’. 

FBNQuest in its first reaction to the Q1 2019 results stated thus In addition to the slow-down in unit volume growth arising from the squeeze in household wallets, increased competition, price discounting and an increase in the excise duty regime are some of the headwinds exerting pressure on sales and earnings’

How well these factors will continue to affect the performance of GUINNESS in the current financial calendar/year is what we will continually monitor on a quarterly basis.

Proshare Nigeria Pvt. Ltd.

Find out more information, Click here to access GUINNESS’s IR Portal in Proshare Markets

Proshare Nigeria Pvt. Ltd.

 

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