Analysts have downgraded Guinness Nigeria Plc’s stock to Sell ratings after a disappointing performance that showed the beer maker recorded its first loss after tax of N488 million in 15 months.
Revenue of the second largest brewer fell 33 percent as its mainstream Ready-to-Drink (RtD) brand, which had previously contributed significantly to top lines, was soft in Q1’16 as a result of rising competition in the herbal RtD segment.
Also, the company’s two brands are smaller than Nigeria Breweries’ six.
The recent economic slowdown caused by a significant dip in crude price by 60 percent, rising inflation and foreign exchange restrictions means subsequent quarters could be a thunderbolt for the beer maker.
“After adjusting for the weak Q1’16 results, coupled with our negative outlook for earnings given the unfavourable operating environment, we cut our target price (TP) for Guinness Nigeria to N96.25 (previous: N138.25),” said analysts at Cardinal Stone Partners (CSP).
“Hence we downgrade our rating on the counter to a SELL. GUINNESS is trading at a forward P/E of 103.7x (from a trailing P/E of 43.7x) compared to emerging market peer average of 21.4x,” said analysts at CSP.
Guinness Nigeria had complained that the currency restrictions were hindering it from procuring the foreign exchange needed to bring in raw materials.
To protect the external reserve of Africa’s largest economy from continued hemorrhaging, the Central Bank imposed a hard currency peg as well as banned 41 items for its official currency window.
Inflation rate have risen six-year high to 13.70 percent while the economy contracted -0.36 percent in the first quarter.
Manufacturing contracted by -7.0 percent y/y in Q1, and its largest segment (food, beverages and tobacco) even more rapidly, by -11.2 percent, according to data from the National Bureau of Statistics.
“The Managing Director of Guinness Nigeria – Peter Ndegwa stated that the company is making progress in broadening its products portfolio to drive future growth. In March 2016, the company unveiled “Orijin Zero” to capture a share of the non-alcoholic carbonated soft drink segment. While general market reception of the brand was positive, we believe the brand is not strong enough to support future top-line growth,” said analysts from CPS.
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Guinness is my favorite drink, i believe its taste does not change thats why it does well in the market.