September 17, 2021/Proshare
by FBNQuest Research
22% increase to our EPS forecasts over the 22-23f period
Guinness surprised negatively in Q4 ’21 (end-June). Against our expectation, the bottom-line came in at a loss of -NGN583m vs. our NGN644m estimate. Nonetheless, sales of NGN45.5bn beat our forecast by a significant 33.5%, after management implemented several rounds of price increases during FY’21. By our estimation, overall volumes in FY’21 grew by low double-digits y/y to c.4.8 million hectolitres (mhl) while average net prices increased by 30-40%. Going forward, we have raised our EPS estimates over the ’22-23f period by 22%. For FY’22, we have adjusted our sales forecast by 17.8% to N183.4bn, reflecting higher pricing and stable alcohol demand.
Guinness’s strategy over the past few years has been to grow its spirits business vs. lager, the more popular category among other brewers in Nigeria. This has yielded positive results as management revealed that in FY’21, premium and mainstream spirits sales rose by 121% y/y and 75% y/y respectively, compared with stouts that grew 50% y/y. Another interesting development is the contribution of spirits to overall turnover, which rose to 22% in FY’21 (from 18% in FY’20 and 14% in FY’17). This shows the extent of the success of the rotation into spirits. We have a gross margin forecast of 28.3% (-721bps vs prior forecast) for FY’22, which reflects our outlook of sustained high commodity input prices. Operating expenses will likely remain on the rise, on the back of continuous marketing and promotion expenses. Hence, we have a new opex estimate of NGN42.2bn (8.4% higher than prior forecast).
Down the P&L, we see net interest expenses higher by 17.0% to NGN3.1bn, after fx losses constituted about 66% of interest cost in FY’21. Management has disclosed to us that fx devaluation will remain a major concern. Overall, our earnings estimate for FY’21 is up by around 11%. Our new price target of N34.3 is up 20% and implies a potential upside of 14% from current levels. We retain our Neutral rating on the stock. Guinness shares are trading on a ’22f EV/EBITDA multiple of 1.9x compared with 5.7x and 6.2x for NB and Intbrew respectively. Year-to-date, Guinness shares have gained +57.9% vs. the NSE ASI’s -3.4% decline.
Mixed results in Q4’21
Guinness Q4’21 (end-June) results were mixed. Topline grew by 444% y/y to NGN45.5bn, aided by low base effects induced by lockdowns in the prior period. However, the company recorded a loss after tax of -NGN583mn. Nonetheless, Q4’21 loss was comparably better than the steeper loss of -NGN13.9bn in Q4’20. While the growth in sales was supported by price increases, cost pressures were linked to higher commodity prices and inflation