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.
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