Event: Guinness Nigeria reports Q1 2018 (end-Sep) results
Implications: Downward revisions to consensus forecasts expected
Positives: Sales up 30% y/y
Negatives: Gross margin contracted by -153bps q/q; Net finance costs surprised negatively
Earlier this afternoon, Guinness Nigeria (Guinness) published its Q1 2018 (end-Sep) results which showed that sales of N29.9bn grew by 30% y/y. PBT and PAT of N41m compare with pre-tax and post-tax losses of -N2.2bn in Q1 2017. Although gross margins contracted by -153bps y/y to 34.7%, this was not strong enough to offset the strong sales growth and a -10% y/y decline in net finance costs, leading to the company still reporting a profit.
On a sequential basis, sales declined by -17% q/q: we attribute this to seasonality. The end-Sep quarter is usually one of the weaker quarters for the brewers. As such, the q/q sales decline is not surprising. PBT and PAT were weaker (-99% down q/q) due to a -1,010bp q/q gross margin contraction and a 201% q/q rise in net finance charges more than offsetting a 24% q/q decline in operating expenses.
Compared with our (unrevised) estimates (after Q4 2017 results), sales were broadly in line. PBT and PAT came in behind our estimates of N600m+. On an annualised basis, sales are tracking behind consensus’ FY 2018 estimate by 14%. PAT and PAT are well behind consensus’ FY estimates of N7.7bn and N5.4bn respectively.
Similar to rival NB which reported its Q3 2017 (end-Sep) results yesterday, we had expected to see a healthier result on the gross margin line given that fx liquidity via the NAFEX window has improved markedly. In addition, while we acknowledge that accounting (accruals) may partly explain the elevated finance charges on a q/q basis, the result was still surprising, and disappointing. We look forward to management’s clarity on this given that the company’s loan book reduced significantly throughout the year.
Guinness’s shares have returned 27% this year but have underperformed the broad index by -8%. We expect the market’s reaction to these results to be neutral to negative.
We rate Guinness Nigeria shares Neutral. Our estimates are under review.
Guinness Nigeria Q1 2018 (end-Sep) results: actual vs. FBNQuest Research estimates (N millions)