Guinness Nigeria Plc Q1 2023 – Improved Gross Profit Inadequate to Grow Bottomline

Improved Gross Profit Inadequate to Grow Bottomline


Guinness Nigeria Plc (‘the Company’) recorded an 11% year-on-year revenue growth to N52.85bn in Q1 2023 (Q1 2022: N47.47bn). The management attributed this growth to improved outlet coverage as well as rollover benefits of price increases taken across all categories in 2021. We also believe that a product mix strategy (that is, the increased sale of premium brands) contributed to the revenue growth.

Gross margin expanded by 300 basis points to 35% in Q1 2023 (Q1 2022: 32%), on the back of operating efficiency. We also attribute the gross margin improvement to improved product mix and higher pricing benefits. In absolute terms, gross profit grew by 20% year-on-year to N18.24bn in Q1 2023.

However, operating profit declined by 9% year-on-year to N5.91bn. This was due to higher operating expenses incurred during the period. Total operating expenses rose by 45% YoY to N12.99bn. Marketing and distribution expenses accounted for 70% of the overall increase.

Finance cost worsened by 131% on the back of currency depreciation. According to the management, the Company’s effective exchange rate increased to N439/$ in Q1 2023 (Q1 2022: N418/$).

Profit after tax stood at N2.75bn, from N4.04bn in Q1 2022, representing a 32% YoY decline owing to higher costs incurred in the reporting period.


We posit that the Company will take a pricing strategy to mitigate rising operating costs and maintain improved gross margin. To this effect, we expect revenue to grow in the remaining three quarters. However, we expect the growth to be mid single digit, as volumes decline due to shrinking demand in an inflationary environment.

Based on our expectation of persistently challenging operating environment, we revise our earnings per share (EPS) forecast for FY 2023 to N5.25 (previous: N8.18). Accordingly, we also revise our fair value for the stock to N80.55 (previous: N119.20). We recommend a BUY, as we think the stock is undervalued as it currently trades at N63.00, implying a 28% discount to our revised fair value.

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