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Guinness Nigeria Plc Records PBT of N2.2bn in Q3 2017 Results

Proshare

Thursday, April 27, 2017/ 12:28 PM / FBNQuest Research

Event: Guinness Nigeria reports Q3 2017 (end-Mar) results
Implications: Cautious upward revisions to consensus forecasts likely
Positives:  PBT and PAT of N2.2bn and N2.1bn vs. pre-tax and post-tax losses in Q3 2016
Negatives: Net finance costs and opex increased by 207% y/y and 43% y/y respectively

Late yesterday, the NSE published Guinness Nigeria’s (Guinness) Q3 2017 (end-Mar) results. Sales of N30.4bn advanced by 54% y/y. PBT and PAT of N2.2bn and N2.1bn compare with pre-tax and post-tax losses of –N448m and -308m respectively reported in Q3 2016.

Although operating expenses and net finance costs increased by 43% y/y and 207% y/y respectively, these were more than offset by the strong sales growth and a +988bp y/y gross margin expansion to 54.7% leading to the strong bottom line. On a sequential basis, Q3 sales were down -17% q/q.  

We attribute the slowdown to seasonality. Q3 is one of Guinness’ weaker quarters. The PBT and PAT compare with pre-tax and post-tax losses of –N2.5bn and –N2.4bn respectively reported in Q2 2017. Despite the q/q sales decline, a 24% q/q increase in net finance costs and a 25% q/q rise in operating expenses, the company’s bottom line was boosted (versus the losses reported in the preceding quarter) because of a +3,010bp q/q gross margin expansion. 

On a 9M basis, sales of N89.9bn were up 29% y/y. Pre-tax and post-tax losses of –N2.5bn and –N2.6bn compare with PBT and PAT of N1.2bn and N864m respectively reported in 9M 2016. The losses were on the back of a -768bp y/y gross margin contraction to 35.8%, a 177% y/y increase in net finance costs and, to a lesser extent, a 6% y/y increase in operating expenses.

Similar to most consumer goods names, Guinness has suffered from unfavourable macroeconomic conditions. The company is still import dependent (we estimate that the company imports over 65% of its raw materials); as such, it has been reporting weak gross margins in the last few quarters. Surprisingly, Guinness reported a gross margin of 55%, up 3,010 bps q/q and 988 bps y/y. However, we believe that the extent of the gross margin expansion in Q3 is likely due to the reclassification of some items between opex and COGS. We will be seeking clarification on this from management.  

In addition, Guinness continues to report fx translation losses (c.-N435m) on the back of a US$26m loan on its books. However, the fx loss is less than the loss of –N857m reported in the prior quarter. On January 24, 2017, the company’s shareholders approved its plan to raise N40bn via a rights issue. We believe the company is trying to deleverage. 

Compared with our estimates, Q3 sales were ahead by 30%. We had forecast pre and post-tax losses. The variance versus our estimates was mainly due to the positive surprise on the gross margin line, although net finance costs and operating expenses surprised negatively. 

On an annualised basis, 9M sales are on track to meet consensus FY estimates. PBT and PAT are tracking ahead by 34% on average. As such, we expect to see modest upward revisions to consensus FY 2017 (end-Jun) pre-tax and post-tax loss estimates of –N5.3bn and –N4.9bn respectively. 

Year to date, Guinness shares have shed -23.7% and have underperformed the broad index by -20%.

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

Guinness Nigeria Q3 2017 (end-Mar) results: actual vs. FBNQuest Research estimates (N millions) 

Q3 2017 (end-Mar)

9M 2017 (end-Mar)

 

Actual

Y/y

Q/q

FBNQuest est.

Act. Vs FBNQuest est (%)

Actual

Y/y

FBNQuest est.

Act. Vs FBNQuest est (%)

Net sales

30,382

53.6%

-16.7%

23,378

30.0%

89,873

29.1%

82,868

8.5%

Cost of sales

-13,759

26.1%

-50.0%

-16,832

-18.3%

-57,700

46.6%

-60,773

-5.1%

Gross profit

16,623

87.4%

85.2%

6,546

154.0%

32,173

6.3%

22,095

45.6%

-Gross margin

54.7%

988bps

3010bps

28.0%

2671bps

35.8%

-768bps

26.7%

914bps

Dist. and admin. exp

-12,542

43.2%

25.2%

-7,013

78.8%

-28,547

5.7%

-23,018

24.0%

Other income

196

68.5%

-27.4%

135

45.1%

566

n/a

505

12.1%

Operating profit

4,278

1767.0%

n/a

-332

n/a

4,193

16.3%

-417

n/a

Net Interest expense

-2,079

207.2%

23.8%

-1,213

71.5%

-6,657

177.4%

-5,791

15.0%

PBT

2,198

n/a

n/a

-1,545

n/a

-2,464

n/a

-6,208

-60.3%

- PBT margin

7.2%

950bps

1395bps

-6.6%

1384bps

-2.7%

-447bps

-7.5%

475bps

Tax

-86

n/a

n/a

-77

10.8%

-91

-73.3%

-83

10.1%

-Tax rate

3.9%

-2734bps

355bps

-5.0%

889bps

-3.7%

-3193bps

-1.3%

-236bps

PAT

2,113

n/a

n/a

-1,622

n/a

-2,555

n/a

-6,290

-59.4%

- PAT margins

7.0%

851bps

1365bps

-6.9%

1389bps

-2.8%

-408bps

-7.6%

475bps

 
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