April 29, 2022/CSL Research

Guinness Nigeria in its recently released 9M 2022 financial report recorded an impressive 38.7% y/y increase in Revenue to N159.45bn from N114.96bn in 9M 2021. Expectedly, the management noted that the topline performance has benefitted mainly from price increases across its brands, as well as favourable brand mix and resilient consumer demand. Besides, we recall that the company introduced Orijin Tigernut and Ginger in October 2021, which has boosted market penetration. Revenue grew across all key categories driven by its strategic focus brands, Malta Guinness and Guinness, as well as strong growth in local and imported spirits and the ready-to-drink category. On a q/q basis, Revenue declined 1.84% to N50.3bn in Q3 2022 from N61.7bn in Q2 2022. The q/q decline can be largely attributed to seasonal demand factors (high Q2 base effect caused by December festivities).

Cost of Sales (ex-depreciati0n) increased by 25.0% y/y to N97.44bn in 9M 2022 from N77.98bn in 9M 2021. Beyond sales volume growth which partly contributed to the cost increments, rising inflation, foreign exchange scarcity impact on the cost of imported materials, and air-freight costs contributed to cost growth. Despite the cost pressures, Gross Profit grew 67.7% y/y to N62.0bn from N36.97bn in 9M 2021, while the Gross Profit Margin expanded by 6.7ppts to 38.9% from 32.2% in 9M 2021.

Operating Expenses (OPEX) (adjusted for depreciation) in the period increased by 41.1% y/y to N34.0bn from N24.1bn in 9M 2021. The rise in OPEX mirrors the strong 67.7% y/y increase to N26.9bn in Marketing and Distribution Expenses (accounting for 79% of OPEX as of 9M 2022) while Administrative Expenses (adjusted for depreciation) moderately grew by 5.2% y/y to N7.2bn.  The increase in marketing expenses shows the firm’s continued marketing investments to support its strategic priorities and the recovery of the on-trade channels. Also, the firm indicated that the increase in distribution expenses was driven by higher volumes, freight and diesel inflation and extended travel times for road transportation. Meanwhile, Other Income increased by 41.0% y/y to N1.3bn, partly supporting EBITDA growth. EBITDA was up 112.4% y/y to N29.3bn from N13.8bn in the corresponding period in 2021. Furthermore, despite a 4.3% growth in Depreciation and Amortization to N6.4bn Operating Profit remained unrattled, rising by 199.5% y/y to N22.5bn.

Net Finance Costs declined by 86.9% y/y to N417m from N3.2bn in 9M 2021. The decline in Net Finance Costs was driven by a 282.0% increase in Finance Income, further supported by a 56.9% decrease in Finance Cost. The fall in Net Finance Cost was as a result of reduction in net interest cost, and higher deposit rates on excess Naira cash in fixed deposits with banks. Leveraging on the reduced Net Finance Cost, Profit Before Tax (PBT) increased by 403.4% y/y to N22.5bn from N4.5bn in 9M 2021. PBT margin also grew by 10.2ppts to 14.1%. Despite a decrease in Effective Tax Rate to 32.0% from 58.8% in 9M 2021, Tax Expense increased by 173.9% on the back of significant growth in Operating Profit. Against all odds, Profit After Tax (PAT) was up 731.2% y/y to N15.3bn in 9M 2022. EPS in 9M 2022 grew to N6.98/s from N0.84/s in 9M 2021.

Our estimates are under review. Current Price – N93.00

Our estimates are under review. Current Price – N93.00

Source: Company financials, CSL Research