Analysis|Drop In Sales, Liquidity Crunch Hurt Guinness As It Post 30% Drop In Pre-Tax Profits (2013 Q1)

Guinness 2013 Q1 ↓

Guinness Nigeria Plc released its 2013 Q1 results showing a YoY drop of 5% to N22.4billion (2012 Q1: N23.7billion). Operating profit also dropped 25% to N2.4billion (2012 Q1: N3.2billion). Pre-tax profits at the end of the period was N1.8billion a 30% drop from the N2.6billion posted a year earlier.

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Key Highlights

• The drop in margins this quarter is as a result of the drop in revenues
• The beer maker has been struggling with revenue growth for some periods as competition from spirits and wine sellers continues to slice of market share
• The company did post a profit but it struggled to do so amidst huge capes cost
• The company is also under pressure from its cash flows. It was only able to generate N5.4billion compared to N6.1billion a year earlier.
• In fact the company only has about N1.3billion in available cash from the N4.6billion held in its accounts. This is because N3.3 of the cash hoard is dividend payments due to be paid and ring fenced as required by SEC
• The company also has overdrafts of N11.3billion and negative working capital of N18.4billion which effectively indicates the brewer is experiencing a liquidity crunch.
• The future outlook increasingly looks troubling for Guinness. They have launched new products and have invested heavily in capes. However, the new products are yet to contribute significantly to market share or drag back market share
• The market still rewards the company with a higher valuation of N235 per share or 30x its trailing earnings per share
• This price is overvalued in my opinion.