Second quarter results for Guinness Nigeria would determine if the recent dip in revenue is a blip or due to renewed competition in its space.
Guinness Nigeria is our stock pick for the week.
About the company
Guinness Nigeria was incorporated in Nigeria on April 29th, 1950 as a trading company importing Guinness Stout from Dublin, Ireland.
The company has since transited to manufacturing a wide range of alcoholic and non-alcoholic beverages from breweries in Ikeja (Lagos State) and Benin City (Edo State).
Guinness Nigeria Plc was listed on the Nigerian Stock Exchange on January 2nd, 1965.
Recent Results
Results for the first quarter ended September 30, 2018, show that revenue dropped slightly from N29.9 billion in 2017 to N28 billion in 2018. Profit before tax, however, jumped from N41.3 million in 2017 to N1.2 billion. Profit after tax also spiked from N41.3 million in 2017 to N1.2 billion in 2018.
Pricing
Current Share Price: N72
Year High: N120
Year Low: N72
Year to Date: -23.40%
One Year Return: -25%
Price Outlook
If what appears to be a Christmas rally is sustained, the stock could bounce back to the triple digit mark before the end of the year. Year to date, the stock is down 23.40%, underperforming the Nigerian Stock Exchange All-Share Index which is down 16.41%.
On a sectoral basis, however, the stock has been one of the least hit. Nigerian Breweries is down 39.14% year to date, while International Breweries is down 44.04% year to date.
Valuation
Guinness is trading at a price to earnings ratio of 19.3 times earnings, nearly twice the average PE ratio on the Nigerian Stock Exchange (NSE).
However, compared to other stocks in the breweries space, it is trading cheaply. Nigerian Breweries is trading at a PE ratio of 27.49 times earnings. International Breweries is trading at 31.9 times earnings.
Firms in the brewery space tend to trade at a premium compared to other stocks, due to their blue-chip status.
Outlook
Second quarter results would be the key determinant for if the firm has been able to maintain its market share in the face of a renewed push by International Breweries.
This has seen its peer, Nigerian Breweries, getting squeezed.
The second quarter is also typically the most active, as it coincides with the festive season when sales are quite high.
While first quarter profits jumped sharply, this was largely due to the low base effects arising from a 2017 result in which the company’s profits dipped sharply, due to high finance costs.
Revenue, however, dipped year on year, due to a drop in domestic earnings.
Why are the reasons as to why PBT and PAT remain the same?
For which of the companies ?