Guinness Revenue

Guinness Nigeria Plc in its FY 2019 financial report announced an 8.0% y/y decline in Revenue to N131.5 billion in FY 2019 from N143.0 billion in FY 2018. Reported Revenue of N131.5 billion came in below our FY 2019 estimate of N136.2 billion. On a q/q basis, Revenue also dipped albeit steeper, recording a 10.4% q/q decline to N30.1 billion in Q3 2019.

The decline in Revenue came as volumes, particularly in the lager segment, significantly remained pressured in FY 2019. Meanwhile, sustained growth in Spirits has helped to cushion the impact of the declines in other business segments.

Cost of Sales maintained a downward trend within the quarter as well as on a y/y basis largely due to lower volumes. Cost of Sales adjusted for depreciation declined 4.1% y/y to N84.1 billion for FY 2019 from N87.7 billion in FY 2018 and dipped 6.0% q/q to N19.6 billion. The slower decline in Cost of Sales relative to Revenue indicates some cost pressures in FY 2019.

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We believe elevated barley prices, a key input for Guinness must have impact costs. Against this backdrop, Gross Profit dipped 14.2% y/y to N47.4 billion in FY 2019 from N55.3 billion in FY 2018. Operating Expenses (adjusted for depreciation) also declined, down 12.5% y/y to N29.2 billion in FY 2019 from N33.3 billion in FY 2019 due to lower Marketing & Distribution Expenses (down 18.3% y/y to N19.8 billion).

Despite lower operating costs, EBITDA slipped lower by 15.8% y/y to N19.1 billion in FY 2019 from N22.6 billion in FY 2018. Depreciation & Amortisation climbed higher by 9.3% y/y while Net Finance cost declined 45.9% y/y to N1.9 billion. Profit before tax declined 28.6% y/y to N7.1 billion in FY 2019 from N9.9 billion in FY 2018. Despite the lower tax, Net Income slid lower by 18.4% y/y to N5.5 billion in FY 2019 from N6.7 billion in FY 2018. Earnings per Share printed at N2.50/s which was in line with our FY 2019e of N2.46/s.

We have a target price of N67.90 for Nigerian breweries with a HOLD recommendation on the stock. Our model is under review for the new numbers. Current price: N41.40/s.

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