Analysts downgrade Guinness to sell ratings


February 23, 2018 | 1:57 am
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Analysts have advised clients to dump the shares of Guinness Nigeria Plc as the company continues to grapple with declining margins and bloating debt in its balance sheet.

Analysts at Cordros Capital say the share price of Guinness Nigeria has gone up way too far and they do not see an upside for the stock in the near term.

“At our revised TP of NGN68.59 (35 percent downside), we find the shares of GUINNESS expensive at current market price of NGN104.90,” said analysts at Cordros Capital.

While a N40 billion rights issue has helped reduce debt, the inability of the company to spend money on new research into new product has left vulnerable to intense competition from rivals.

For instance, Anheuser-Busch InBev NV, (AB InBev) is seeking to consolidate its three businesses into one listed entity on the Nigerian Stock Exchange (NSE) as early as next month; sources familiar with the matter tell BusinessDay.

AB InBev acquired SABMiller last year which owns International Breweries Plc, Intafact Beverages Limited, and Pabod Breweries Limited.

Experts say Guinness will have to introduce new champion brands into the market because some of its existing brands have been hit by demographic change. This means a lot of the new generation beer drinkers have shifted to other brands.

For the half year December 2017, Guinness’s cost of sales or input costs increased by 13.25 percent to N46.67 billion while cost of sales ratio improved to 34.01 percent in the period under review from 30.86 percent as at half year ended December 2016.

The Nigerian consumer goods giant is struggling with a weak consumer spending despite the country existing its first recession in 25 years.

Guinness ability to meet interest expenses is questionable as its interest coverage ratio of 1.38 times operating profit is lower than the generally acceptable benchmark of 1.50 times operating profit.

The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt.

The interest coverage ratio may be calculated by dividing a company’s earnings before interest and taxes (EBIT) during a given period by the company’s interest payments due within the same period.

“On our estimates, Guinness trades on FY18 P/E and EV/EBITDA of 36.4x and 10.3x, which we view as expensive vs the SSA peer averages of 23.0x and 10.1x, respectively,” said analysts at Renaissance Capital (Rencap).

“However, strong EPS growth in FY19E should help drive its two-year forward P/E down to 22.6x with EV/EBITDA down to 9.5x. While still more expensive than the peer average on forward P/E in FY19E, two-year compounded EPS growth of 111.4% in FY19-20E helps drive its FY20E P/E down to 17.2x, on our numbers,” said analysts at Rencap.




February 23, 2018 | 1:57 am
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