January 31, 2018/InvestmentOne Report

Strong topline growth: up  +35.9% q/q ; +11.5% y/y

·         Mixed gross margin: down -117.8bps q/q; up +600.9bps y/y

·         Contraction in opex to sales ratio: down -246.4bps q/q;-642.1bps y/y

·         Recovery in PBT: N3.5billion in Q2 2018 against N41million in Q1 2018 

Yesterday, Guinness Nigeria Plc released its Q2 2018 results, which were reflective of the benefits of the recently completed right issue of N40billion, stringent cost management, price hike, a more favourable foreign currency market as well as an expanded portfolio. 

The company reported PBT of N3.5billion in Q2 2018 against a loss before tax of -N2.4bn in Q2 2017. This was largely driven by the combined impact of an +11.5% y/y top line growth, +600bps y/y expansion in gross margin, -642bps y/y reduction in opex/sales ratio and -70.4% y/y slide in net interest expense.  

Although the increase in top line performance was partly attributable to a price hikes (c.25% of revenue growth), management highlighted that revenue performance was mainly the result of volume increases in its value and mainstream brands.  

Furthermore, the net interest expense performance may not be unconnected with the company’s recent right issue used to restructure its balance sheet. This led to a -71% y/y decline in loans and borrowings contributing to the slide in net debt to equity ratio to c.1.7% as at Q2 2018, from c.104% as at Q2 2017. 

On a sequential basis, Guinness’ results were reflective of the impact of the festive period and the lower base effect of Q1 2018 when the company reported PBT of N41million. The Q2 2018 performance was due to the +35.9% q/q jump in revenues, -246bps slide in opex to sales ratio as well as the -80.9% q/q drop in net finance cost, which combined to more than offset the -117bps moderation in gross profit margin.  

In the near term, we believe the company’s gross profit margin performance may be diluted by the increasing contribution of its value and mainstream brands. However, this may be moderated by the potential increase in the importation of raw materials, which management highlighted as being cheaper than locally sourced inputs in a relatively stable FX market. Nonetheless, we expect bottom line performance to continue to benefit from the recent balance sheet restructuring, expected efficiency in productivity and reduction in waste as mentioned by management, which may further drive down opex.  

Our pricing models are currently under review.

Guinness Nigeria Plc  Q2 2018  figures ( N’ millions)

Source: NSE, Investment One Research