Guinness Nigeria Plc released its 2015 9 Months results last week showing pre-tax profits dropped 8% to N7.1billion only. The company also recorded an earnings per share drop of 12% to 346 kobo per share. Margins also continues to be a challenge dropping to 6.2% this period (9 Months) from 7.6% same period 2014. Guinness as this results show, is still facing up to a new reality that is cheaper beers.
These results on the surface suggest things will continue to get worse till it gets better. But when will it get better? This results provides some important clues.
Clue 1: Guinness recorded a third quarter (Jan to March) revenue of N29.4billion topping what it churned out in 2014 and 2013 respectively. It was also the largest revenue recorded this year after it post N30billion between October and December 2014 (Traditionally its strongest quarter). This revenue growth we like to believe is the Orijin effect. The local drink is driving up sales in leaps and bounds and even though it is at the cost of margins shrinkage, could just be the ultimate profit driver. This takes us to the next clue;
Clue 2. Operating profit (without other income) this quarter came out at N3.4billion, beating 2014 and 2013 operating profit of the same period. It was also the second highest this financial year after posting N5.2billion last quarter (Q2). This suggest to us that the company is gradually squeezing out margins from tight competition higher marketing cost. Even though operating expenses is still high at 75% of gross profits this year, it did much better than the 80% in posted in the same period in 2014 and 2013 respectively.
Clue 3 – Margins has been a huge problem for Guinness considering the intense competition in the market, huge demand for value brands by drinkers as well as a gradual shift in taste by consumers. Guinness churned out a profit margin of 6.2% this quarter. Again, this beats the 3.7% and 4.5% it posted in the same period in 2014 and 2013 respectively. The company says this is also signs that their more premium brands are beginning to see sales rise.
The above clues suggest to us that things may be turning around, though slowly but it’s become evident. Off course this may just be a blip even though the visible adoption of Orijin is blurring that thought. Could things change by Q4? At this rate it’s hard to bet against that.
|1 Day Change||0|
|1 Week Change||-1.18|
|1 Month Change||32.28|
|6 Month Change||-7.69|
|52 Week Change||-11.58|
The table above indicates the market may have already factored in some of the gains mentioned above. Guinness has now gained 32% in the last one month. It is still down 11.5% from a year ago and 7.6% in the last 6 months. But does this suggest any more upside? Investors for all the right or wrong reasons attribute high P/E ratios to Brewery stocks in Nigeria. However, with Guinness already trading at 32x compared to its closest and more profitable rival Nigeria Breweries at 27x multiple, it appears there is little upside in here. For now, we can only hope Orijin continues to bring life to this company.
Disclosure – Nairametrics and the author of this article does not own shares in Guinness Nigeria Plc and does not plan to buy shares in Guinness Nigeria Plc in the next one week. The author of this article wrote it themselves, and did not write this article on behalf of Guinness Nigeria Plc, its associates or representatives. The article is purely their opinion