Guinness Nigeria Plc Q3 2018 Results Review - Sales Grew By 15% YoY to N34.9bn

Proshare

Monday, April 30, 2018 /10:18 AM / FBNQuest Research  

Event
: Guinness Nigeria reports Q3 2018 (end-Mar) results
Implications: Upward revision to consensus estimates likely
Positives:  PBT advanced by 98% y/y to N4.4bn.
Negatives: Gross margin contracted by -922bps y/y 

Late on Friday, Guinness Nigeria published its Q3 2018 (end-Mar) results which showed that sales grew by 15% y/y to N34.9bn. Although gross margins contracted by -922bps y/y to 33.2%, this was not strong enough to offset the strong sales growth, a -12% y/y decline in operating expenses and a net interest income of N318m versus a net interest expense of –N2.1bn recorded in the corresponding quarter of 2017, leading to PBT growing faster, by 98% y/y to N4.4bn. Owing to a 2,811bp y/y expansion in tax rate, PAT growth slowed to 40% y/y to N3.0bn. On a sequential basis, sales declined by -14% q/q which we attribute to seasonality. 

The end-Mar quarter is usually one of the weaker quarters for the brewers. Despite the sales decline and a -32bp q/q gross margin contraction, PBT grew by 24% q/q due to a 21% q/q decline in operating expenses and the net interest income figure recorded (versus a net interest expense of –N498m in the preceding quarter). We attribute the net interest income to the deleveraging of the firm’s balance sheet via proceeds of the company’s successful N40bn rights issue last year. PAT grew by 42% q/q because of an -831bp q/q contraction in the tax rate. 

Compared with our estimates, Q3 sales were broadly in line while PBT and PAT were ahead significantly, mainly because of the softer opex and positive net interest income lines.

On a 9M basis, sales advanced by 17% y/y to N105.5bn. PBT and PAT of N7.9bn and N5.1bn compare with pre- and post-tax losses of –N2.5bn and –N2.6bn respectively recorded in 9M 2017. Although gross margin contracted by -103bps y/y, this was offset by declines of -8% y/y and -58% y/y in operating expenses and net finance charges respectively, and led to the profits on the bottom line. 

When annualised, Guinness Nigeria’s 9M 2018 sales are on track to meeting consensus’ FY estimate while PBT is tracking ahead by around 10%. Consequently, we expect to see slight upward revision to consensus PBT forecast and a neutral-to-positive reaction from the market.

Guinness’s shares have returned 9.6% ytd compared with the 7.9% return delivered by the broad index.

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


Guinness Nigeria Q3 2018 (end-March) results: actual vs. FBNQuest Research estimates (N millions)
Proshare Nigeria Pvt. Ltd.
Source: NSE; FBNQuest Capital Estimates 

Proshare Nigeria Pvt. Ltd.

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