Tuesday, November 3,
2020 / 11:33 AM / by FBNQuest Research / Header Image
Credit: Guinness Nigeria
Moderate increases to 2021-23E earnings
Nigeria's (Guinness) Q1 2021 results (end-Sep) suggest that volumes grew by
double digits y/y and topline recovered quickly from the lockdown (3.6x q/q) in
Q4 despite the 14% increase in excise taxes on spirits (c.18% of sales). Sales
increased by 12% y/y and were 86% ahead of our forecast. However, the company
posted a pretax loss of -N317bn because topline strength was eroded by higher
fx costs. Gross margin contracted by -619bps and was -765bps narrower than
forecast. To guard against rising fx headwinds, we understand that management's
growth strategy is to direct more working capital and marketing investments
towards categories where it commands market leadership and pricing power,
namely spirits, ready-to-drink and premium beer. Effectively, the product
portfolio will lean further away from the beer value segment (c.65-70% of the
That said, considering the weaker exchange rate
combined with hikes in petrol prices and electricity tariffs this year,
sustained pressure on disposable incomes is likely to pose a major obstacle to
Guinness' strategy. Essentially, our upward adjustments to the topline appear
conservative relative to the positive surprise because we did not anticipate a
recovery until Q2. As such, the Q1 run rate was still not significantly above
our 2021E forecast. Our earnings forecast for 2021E remains in negative
territory but we have raised our 2022-23E EPS forecasts by an average of 11%.
The higher EPS forecasts are largely supported by upward adjustments to sales.
The forecast changes translate to a 9% increase to our
price target to N14.2. Guinness shares have sold off by -43% year-to-date,
underperforming the broad market index by -57%. From current levels, our new
price target implies a downside potential of -16%. We retain our Underperform
rating on the stock.
-N317m pretax loss in Q1, but better than our forecast
The -619bp gross margin contraction was the chief
driver behind Guinness' loss in Q1. This more than offset -10% y/y and -14% y/y
decreases in opex and net interest expense, and a 73% increase in other income.
On a sequential basis, gross margin contracted by -689bps q/q while other
income declined by -50% q/q. These offset -3% q/q and -72% q/q declines in opex
and net interest expense respectively. As such, Q1 pretax loss compares with a
PBT of N851m in Q4 2020. Relative to our forecasts, the pretax loss beat our
forecast by -25%, driven largely by the higher-than-forecast sales.
Nigeria Holds 70th Annual General Meeting
Declares N842m Loss in Q1 2021 Results, (SP:N16.00k)
Notifies of Board Meeting Date and Commencement of Closed Period...
Nigeria Q4 2020 Results Review Tepid Near-to-Medium Term Outlook...
5. GUINNESS Declares
N12.6bn Loss in 2020 Audited Results, (SP:N15.60k)
6. GUINNESS Notifies of
Fire Incident At Its Warehouse
7. GUINNESS Notifies of
Material Circumstances With Impact on Its FY2020 Results
8. Guinness Nigeria Plc
Series 1 and 2 Commercial Paper Is Coming soon
9. Guinness Nigeria Q3
2020 Earnings Largely Undermined by FX Dislocation
10. GUINNESS Declares
N1.4bn PAT in Q3 2020 Results,(SP:N18.40k)
Nigeria Q2 2020 Results Review Maintaining Underperform Rating...
Declares N1.32bn PAT in Q2 2020 Unaudited Results, (SP:N30.20k)
13. GUINNESS Q1'20 Results: Lower Revenue and Higher
Leverage Underpins Weak Operating Performance