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Guinness Nigeria Reports Q4 2017 Results – Gross Margin Contracted by 993bps QoQ to 44.8%

Proshare

Tuesday, September 05, 2017 / 5:34 PM /FBNQuest Research

Event:                       Guinness Nigeria reports Q4 2017 (end-Jun) results

Implications
:        Upward revisions to consensus forecasts expected

Positives
:              Sales up 11% y/y, PBT and PAT recovered to N5.1bn and N4.5bn from pre-tax and after-tax losses in Q4 2016 respectively

Negatives
:               Gross margin contracted by 993bps q/q to 44.8% in Q4 2017

This morning
, Guinness Nigeria (Guinness) published its Q4 2017 (end-June) results which showed that PBT grew to N5.1bn from a pre-tax loss of –N3.6bn that the company delivered in Q4 2016. The strong recovery seen on the PBT line was driven by a combination of factors, including an 11% y/y expansion in sales, a gross margin expansion of 910bps to 44.8%, a 5% y/y reduction in opex and an 80% y/y decline in net interest expense.

Further down the P&L, PAT grew to N4.5bn from an after-tax loss of –N2.9bn in Q4 2016. Sequentially, sales were up by 19% q/q. However, PBT and PAT were up by significantly
greater margins of 133% q/q and 112% q/q respectively. Compared with our forecasts, sales missed by 7%. However PBT and PAT came in ahead of our N778m and N886m forecasts for both lines respectively. Guinness’ 2017 PBT also came in ahead of consensus forecast of –N1.2bn for 2017.

On a full year basis, sales advanced by 24% y/y. Similar to the y/y trends seen in the Q4 results, PBT and PAT recovered to N2.7bn and N1.9bn compared
with the pre-tax and after-tax losses of –N2.3bn and –N2.0bn that the company delivered for the 2016 fiscal year. Although sales were broadly in line (-2%) with our forecast for the full year, PBT and PAT were ahead of our -N1.7bn forecast for both lines.

The management of the firm has proposed a full year dividend of N0.5 which is broadly in line with our N0.59 forecast but around 84% lower than the N3.20 dividend for 2016. The proposed dividend translates to a dividend yield and payout ratio of 0.7% and 39.1% respectively.


Similar to rival NB which reported its Q2 2017 (end-June) results in July, we believe that Guinness’ results were driven by higher pricing rather than volume growth. We note that brewers implemented average price increases in the mid-teens range towards the latter part of last year. We also believe that the relative ease of sourcing fx from the NAFEX window which was introduced in April also helped with the gross margin expansion.


Given that Guinness
2017 PBT of N2.6bn was ahead of the pre-tax loss of –N1.2bn that consensus had forecast for the line, we expect to see upward revisions to consensus earnings forecast.

We expect the market to react positively to these numbers. We rate Guinness Nigeria shares Neutral. Our estimates are under review.


Guinness Nigeria Q4 2017 (end-Jun) results: actual vs. FBNQuest Research estimates (N millions)



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