There have been so many quotes about greatness in the past but none as short and precise of that of a French Mathematician in the 17th Century who aptly believes “Mans greatness lies in the power of his thought”. What he however didn’t mention was that greatness even wen achieved is not static, and must always adapt to changes in environment and off course competition. Guinness Nigeria Plc a company that associates its brand with Greatness knows that much and admitted in its half year earnings report that results “inflationary pressures” and “high interest rates” have all but ensured that “bottom line growth” is “suppressed”. Currently as was reported months ago in a blog post, their earnings report currently falls short of the greatness that it espouses.
Competition is rife and the Nigerian beer market is flooded by brands which for the first time we can say are of good quality. One way to also fight competition and maintain market share is to flood the market with products that cuts across market segments. A ?model companies with years of dominance and high margins love to hate but yet adopt. Its no wonder Guinness introduced Snapp a product that lovers of Smirnoff Ice, Gordon Sparks and ever Malta Guinness will also like. That’s a move not borne out of an attempt to give customers variety but to stave off competition from similar products that on the contrary rank as premier for lesser known competitors.
Moves like this cut hard on margins and its no wonder Gross Profit Margins for 6 months to December 2012 to shrunk 2.9% when compared to the same period last year. Operational Profit margin also shrunk comparatively by 8.13% due to increase in Advert & Promotional Cost as well as Admin expenses. Despite all of this Guinness Nigeria Plc is still one of the best performers on the Nigerian Stock Exchange and still consistently report profits. A return on equity of 16.2% for the first half of the year is still very much impressive. Cash flow from operations N16billion very much covers its loans repayments of N4b and investments on capex of N9billion.
For dividend seekers, the current share price of about N297 provides a 2.6% yield, a return that should only please the most risk averse investors you can ever think off. As per capital appreciation there is a different but nonetheless expected feel. Share price has risen 35% over the last one year even though at 24% it fell below the NSEASI of about 35% as at December 2012. A pricey N297 per share provides a P.E ratio of 33x . With growth slowing and equally good stocks like GTB & Zenith trading at P.E’s of 12X and 10X respectively, then you wonder what is great about buying this stock for 33 times its trailing earnings.
GUINNESS NIGERIA PLC Q2 UNAUDITED RESULTS DECEMBER 2012
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