Guin­ness Nige­ria falls to decade-low on earn­ings gloom

Source: Bloomberg


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.

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