Thursday, February 01, 2018 /5:40 PM /FBNQuest
Event: Guinness Nigeria reports Q2 2018 (end-Dec) results
Implications: Slight downward revisions to consensus PBT forecasts
Positives: Sales up 12% y/y, PBT advanced to N3.5bn vs pre-tax
loss of N2.4bn in Q2 2017.
Negatives: Gross margin contracted by -118bps q/q
Guinness Nigeria’s Q2 2018 (end-Dec) results showed marked y/y growth on
all key headline items. While sales grew by 12% y/y to N40.7bn. PBT and PAT
advanced to N3.5bn and N2.1bn compared with pre-tax and after-tax losses both
of which came in at -N2.4bn in the corresponding period of 2017 respectively.
The strong growth in earnings was driven by a gross margin expansion of 601bps
y/y to 33.5% and a 70% y/y reduction in interest expense. While we attribute
the marked y/y expansion in gross margin to lower input costs due to the
improvement in fx liquidity, we believe that the significant reduction in
interest expense is likely related to the deleveraging of the firm’s balance
sheet, with the proceeds of its N40bn rights issue.
On a sequential basis, sales grew by 36% q/q, largely driven by
seasonally stronger sales in the final quarter of the year. Thanks also to the
clean-up of the firm’s balance sheet, PBT and PAT accelerated by between 50x to
85x. We note that Guinness’ total debt (including overdrafts) declined by
around 64% y/y following the rights issue.
Compared with our estimates, sales were broadly in line. Although, PBT
beat our forecast by around 22%, the beat on the PAT line was weaker at 4% due
to a higher effective tax rate of 40.3% compared with the 30% tax rate that we
had in our model.
When annualised and adjusted for seasonality, Guinness Nigeria’s H1 2018
PBT tracks slightly behind consensus’ FY PBT forecast of N8.2bn. Consequently,
we expect to see slight downward revisions to consensus PBT forecast and a
Neutral reaction from the market.
Guinness’s shares have broadly tracked the index this year. The shares
have returned 19% ytd compared with the 16% return delivered by the broad
We rate Guinness Nigeria shares Underperform. Our estimates are under
Guinness Nigeria Q2 2018 (end-Dec) results: actual vs. FBNQuest
Research estimates (N millions)
- Guinness Nigeria Plc - Earnings momentum picks up in H1''18
- Guinness Nigeria Plc: Earnings rebound from Q1 low, despite
- GUINNESS Declares N2.13bn PAT in Q2''18 Results,(SP:N113.00k)
Declares N41.4 mln PAT in Q1''17 Results,(SP:N100.04k)
Nigeria Plc - Impeccable Q4 seals FY’17 Bottom Line Recovery
Nigeria Plc: Upward Revision to Estimates on Margin Recovery
Nigeria Reports Q4 2017 Results – Gross Margin Contracted by 993bps QoQ to