Guinness Nigeria falls to decade-low on earnings gloom
Guinness Nigeria Plc’s share price has plummeted to a decade- low as a pessimistic earnings outlook triggered a sell-off.
The stock fell by as much as 10 percent Thursday and despite inching up some 4.7 percent Friday to N66, it remains the lowest in a decade.
The Stock’s drop pushes 14- day Relative Strength Index to 1.1%, below level of 30 that signals shares may have been oversold. The stock is down by 37% in past 12 months.
According to an analyst at Vetiva Capital, Onyeka Ijeoma, investors may be taking position based on their expectations for H1 results.
In its results for the full financial year ended June 2018, revenue surged by 14% year on year from N125.9 billion in 2017 to N142.9billion in 2018. Profit Before Tax jumped by 280% from N2.6 billion in 2017 to N9.9 billion in 2018. While Profit after tax also jumped by 263% year on year from N1.9 billion in 2017 to N6.9 billion in 2018.
Also in its Q1 Financial reports for the period ended 30th September, 2018 revenue dropped slightly from N29 billion in Q1 2017 to N28 billion for the corresponding period in 2018.
It would be recalled that Guinness Nigeria Plc attributed the six percent decline in its net sales during the Q1 2018/2019 financial year which ended 30th September, to increased competition in the value beer segment, that more than offset growth across the rest of the business.
Baker Magunda, Managing Director/ Chief Executive Officer, Guinness Nigeria Plc, noted that the company delivered a result that reflected the continued challenges in the operating environment and increased competition in the beer category.
According to him, continued inflationary pressure on raw material costs and volume declines impacted both gross profit and its operating profit. He said the profit before tax, however, benefitted from a significant reduction in net finance charges as a result of the rights issue.
Also an analyst at Renaissance Capital, Adedayo Ayeni, predicted that the H1 results will continue to show weakness in operating profit like we saw in the first quarter. He further noted that Tariff increase on beer and spirits introduced by the government is affecting company’s earnings margin more than competitors.
Noting that Guiness Nigeria does not have the type of brand that can carry it through the cycle” of intense competition in beer market.
The beer segment has continued to experience a stiff competition among the three major players in the country namely, Nigerian Breweries, Diageoowned Guinness Nigeria Plc, and AB Inbev-owned International Breweries.
The year 2011 ushered in a disruption in the beer market with the arrival of Sabmiller and its acquisition of majority shares in International Breweries Plc, makers of Trophy Beer, located in Ilesa, Osun-state. However, in 2017, AB Inbev acquired 72.17% of Sabmiller ’s shares in International Breweries Plc, in a series of transactions which resulted in AB Inbev acquiring controlling interests in the company.
Interestingly Guinness remains the biggest in the Spirit segment while other brewers are not ready to enter this segment.