- 14% revenue growth in FY’18 supported by higher volumes
- A sharp rise in PAT supported by operating and finance cost containment
- Board proposes ₦1.84/share dividend (FY’17: ₦0.64)
- Excise duties, intense competition set to weigh FY’19 topline, margins
Healthy revenue growth driven by stronger volume momentum
GUINNESS FY’18 (year ended 30 June 2018) revenue grew 14% y/y to ₦143 billion, only slightly below our ₦144 billion estimates, with the growth driven by a 10% y/y increase in volumes for the period. According to parent company Diageo, beer sales grew by 15% y/y supported by sustained momentum inaccessible beer brands as well as a recovery in Guinness stout which we believe were supported by a lower base in the previous year and strong activation drive in the football season. Meanwhile, the Spirits segment (accounts for 15% of revenue) also performed well within the period, with net sales up 28% y/y. amidst sustained marketing investments. However, noting the soft demand environment, intense competition and effect of the new excise duties, we expect FY’19 to be a tough year for GUINNESS’ topline ambition with the company’s seemingly weaker foothold in the value lager beer segment (which is estimated to account for 57% of the beer market) leaving it vulnerable in the near term.
Earnings recovering as deleveraging pays off
Reflecting inflationary pressure on GUINNESS’ input costs, gross profit for FY’18 stayed flat y/y at ₦48.6 billion despite the 14% revenue growth for the period. Nonetheless, notable productivity gains across its distribution channels and continuous OPEX containment supported a 31% y/y rise in Operating Profit, though behind the 46% rise we had expected. The strongest boost to earnings, however, came from a 54% y/y decline in net interest expense (FY’18: ₦3.4 billion, Vetiva: ₦3.0 billion), an effect of the deleveraging done earlier in the year. As such, FY’18 PAT came in at ₦6.7 billion (Vetiva: ₦7.9 billion), a sharp rise from ₦1.9 billion recorded in FY’17 and a continuation of its bottom line recovery following the 2016 slump (LAT: ₦2.0 billion).
FY’18 earnings estimates, TP revised upwards on outperformance
Amidst the earlier mentioned factors, we forecast a net revenue (ex-excise duties) figure of ₦142 billion for FY’19. Having revised our revenue estimate lower, our EPS forecast for FY’19 is revised to ₦3.67 (Previous: ₦4.74, FY’18: ₦3.06). With an estimated 60% payout ratio, we forecast ₦2.20 DPS for FY’19 (Dividend Yield: 2%). Overall, we revise our 12-Month Target Price to ₦83.10 (Previous: ₦89.70), SELL.
VETIVA RESEARCH
