Despite thinning margins and increased competition, analysts in RenCap indicates Guinness Nigeria Plc remains a major top pick in the brewery segment of the Nigerian Stock Exchange. The company reported a drop in profit after tax from N6.7 billion in 2018 to N5.4 billion as at the end of 2019.
Nairametrics reported that Guinness Nigeria Plc might have lost its top position as the largest brewer by revenue to International Breweries, yet it appears the company could win a more important, though, short term battle. Share price.
With the limited economic growth triggers, stagnated wealth levels per capita and the protracted implementation of the new minimum wage, Guinness is expected to benefit immensely from higher beer pricing that is expected in the second half of 2019. This is the most feasible and important near-term trigger to its margins, earnings and valuations.
[READ MORE: Official: Guinness now produces Baileys from Nigeria]
It is also expected that a slight drop in the prices of key raw materials like sorghum and barley will cushion the effect of the gross margin deterioration incurred by the company from the higher excise.
- It is important to note that Guinness kept its total debt to the industry lowest at N14.5 billion while NB and IB kept theirs at N56.6 billion and N225.1 billion respectively.
- As at September 10, 2019, Guinness’ One Year forward Price Earning stood at 11.5, which is the lowest in the industry. This means that the stock is not over-priced and has potentials to rise further.
- Also, its Two Yearforward price Earning stood at 8.8, another lowest in the industry.
The bottom line: Stocks with low PE like Guinness can be considered good bargains as their growth potential is still unknown to the market. If the PE is higher, it warns of an over-priced stock and that means the stock’s price is much higher than its actual growth potential. So, such stock value are more liable to fall drastically.
- Guinness typically has impressive One and Two YearEnterprise-value(EV)-to- Earnings Before Interest, Taxes, Depreciation and Amortisation(EBITDA) ratio, 3.8 and 3.5 respectively, another industry lowest
The bottom line: EV/EBITDA is calculated by EV divided by EBITDA or earnings before interest, taxes, depreciation. As a general guideline, an EV/EBITDA value below 10 is commonly interpreted as healthy and above average by analysts and investors (Investopedia).
- Despite tough competitive landscape, it witnessed good growth performance from Guinness, Spirits and the malt drinks.
- Recently, its parent company, Diageo Plc, announced an investment of Euro 180 million in renewable energy and water recovery solutions across six cities in Africa, including its two plants in Nigeria. When completed, the investment will be the largest green investment in a decade in Africa.