April 25, 2019/Cordros Report
Event: GUINNESS published Q3-19 results today, reporting 43.5% y/y decline in EPS, on the back of lower revenue, as well as higher operating expenditure and finance costs. Compared to consensus, the reported EPS missed estimates by 11%, but beat our estimate by 31% due to positive surprises on the OPEX and net finance cost lines.
Revenue fell 3.8% y/y as, according to management, (1) volume growth in Spirits, Guinness, and non-alcoholic Malta Guinness was offset by decline in lager, (2) increased excise duty on value spirits negatively impacted sales, and (3) performance was impacted by the disruption caused by the February elections.
Gross profit margin decreased 42 bps y/y to 32.8%, lower than the 34.0% we estimated for the quarter, as revenue declined faster than COGS (-3.2% y/y). The gross margin shrinkage was smaller compared to NB’s 373 bps decline.
OPEX rose by 9.4% y/y in Q3-19, with the ratio-to-revenue coming in at 25.2%, both slightly lower than our estimates. The result shows a 20.8% increase in administrative expenses (27% of total OPEX). Other income declined 16.6% y/y, resulting in EBIT and EBITDA moderating by 33.2% y/y and 17.8% y/y, with 8.0% (-353 bps) and 15.3% (-262 bps) margins, respectively.
Elsewhere, net finance cost of NGN235 million was recorded, compared to net finance income of NGN318 million in Q3-18, comprising 39.0% y/y increase in finance costs and 91.2% y/y reduction in finance income. On finance costs, interest expense on overdraft surged 1,580%, as the balance of bank overdraft (NGN5.23 billion) is significantly higher compared to Q3-18 (+237%), while on finance income, there was a 104% reduction in the gain on re-measurement of foreign currency balances.
Compared to Q2-19, PAT was down by 4.1%, weighed by much lower revenue (-15.4%). Effective tax rate in the quarter was 32.0%, same from the two previous quarters.
Comment: GUINNESS’ Q3 performance was unimpressive in our view. YtD, the stock has lost 33%. The market reacted negatively to the results, leading to the stock ending today’s trading session at its lowest price since 2005. Our estimates are under review.
