Guinness Downgraded to a SELL…What the heck is wrong with GUINNESS?


Monday, November 17, 2014 1:48 PM / Meristem Research


Guinness Nig. Plc posted yet another disappointing quarterly result (2015:Q1), as revenue shrank once again by 6.07% (NGN21.05bn vs.NGN22.41bn in the corresponding period last year). Although we anticipated that the beer maker's recent drive into the value segment (given the launch and subsequent market acceptance of the 'Orijin' brand) should support performance going forward, the company's recently released 3 months result indicated otherwise. The disappointing performance scorecard is coming just after the beer maker announced that Mr. John O'Keeffe will be taking over the headship of the company from Mr. Seni Adetu in November 2014.


Cost of sales declined 12.15% to NGN10.50bn (vs. 11.95bn in 2014Q1) thereby trimming down cost to sales margin to 49.89% from 53.33% in prior period. OPEX fell slightly by 1.34% while operating profit improved by 7.84% (NGN2.71bn vs. NGN2.51bn) in the quarter. Finance charges, which rose 31.59% (NGN1.18bn vs. NGN2.51bn), remained a drag to earnings.


Although, Profit before tax (PBT) improved reasonably by 5.06%, profit after tax (PAT) contracted by 14.81%, due to higher tax expenses, slimming down to NGN1.49bn compared to NGN1.74bn in prior period.


Our analysis of Beer market trends in Nigeria linked this sustained performance drags to extreme rivalry in the sector, likely market cannibalism, slowing premium brands growth and sustained soft discretionary spending.



Updating our model in the realities of the above and adopting a blend of absolute and relative valuation models, we downgrade our 12months target price for GUINNESS to NGN139.66 (from previous NGN194.29), implying a 12.71% downside to current market price of NGN160. Hence, our rating on GUINNESS is downgraded to a SELL.


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