Event

Guinness Nigeria Plc (‘the Group”) recently released its Q3 2022 financial performance, reporting an 18% YoY rise in revenue, while Profit after tax grew by 200% to N6.46bn (Q3 2021: N2.16bn).

According to the Company, the revenue growth drivers were improved product mix, price increases across all brands, and strong product demand. Spirits remained the Group’s major revenue growth engine. In line with the Group strategic shift to higher-margins products, the Spirit segment witnessed significant growth across both the Mainstream and International Premium sub-segments.

To deepen route-to-market to drive increased volume sales and other strategic growth priorities, marketing and distribution expense grew by 19% YoY to N9.24bn. Administrative expense, however declined by 13% YoY to N2.11bn. On the back of higher marketing spend, operating expense increased by 12% YoY to N9.29bn.

The combined impact of higher revenue growth, cost optimisation, and operating leverage translated to a significant profit growth, operating profit rose by 137% YoY. Profit after tax grew by 200% YoY to N6.46bn.

Outlook

Between our last earnings report and now, the Group’s market value grew by 102% to current market price of N98.00, reflecting a repricing made on the stock based on market’s expectations of earnings growth. Based on our expectations for revenue and profit growth, we estimate N86.58 as the stock’s fair value.

We note the Group’s recent improvements recorded across key financial metrics (topline growth, margin expansion, deleveraging, and robust liquidity). However, we are cautious of the sustainability of the revenue growth. This is because the revenue growth recorded by the Group was price-driven, amid rising input cost pressures due to global supply chain challenges and the recent geopolitical conflict in the Eastern Europe. We view the price increase as a general industry move after several months on haemorraghing margins in the past.

We recommend a HOLD for the stock. Based on our estimated fair value, the stock offers a 9% downside potential (inclusive of dividend yield). We posit that entry into the stock at the current market price might be sub-optimal. Our view is further strengthened by the earnings yield of the stock. An earnings yield of 9% when we do not expect to see material revenue and earnings growth in the medium to long term is relatively low, in our view.

Please follow the link “Guinness Nigeria Plc 9M 2022 – Remarkable Run Continues”  to view the whole report.

Thank you.