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Guinness Nigeria Plc released its 2013 to December H1 results showing Revenue dipped 13% to N52.7billion (2012 H1: N60.8billion). Operating profit also dropped 30% to N7.6billion as the company faces off with one of its toughest operating year yet. They ended the period with a 32% drop in pre-tax profit to N6.4billion.  Despite posting profits, the result was poor to say the least as margins dipped across its lines.

Guinness closed the day 4.6% lower to N192 just 10kobo shy of its one year low. The drop in revenues was perhaps more hurting than the drop in profits as it highlights a more immediate problem for the company considering that they face strong competition from distillers and cheaper beer. The result though in contrast with that of Nigerian Breweries, still shows a glaring problem with the big two…liquidity squeeze. Negative working capital, drop in revenue growth and huge retained earnings without cash to back it up is more of threat to shareholder returns as I suspect dividends will be low at the end of the financial year.

Capital gains on the order hand is fast eroding, Guinness Plc has lost 32% in the last 12months dropping from its high of N293.6 a year ago to N192 today. Call us crazy but we value Guinness at between N100-120 at most, which by the way is a P.E ratio of 12-15x which is still not a bargain by our metrics. Compared to today’s P.E of 24x we certainly are generous. Make no mistakes about, Guinness Nigeria is still a quality company just that the current price don’t justify its valuation.

Coronation Research


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