Company: GUINNESS NIG. PLC (GUINNESS)
Rating: Hold
Current Market Price at Earnings Release: N80.50
Intrinsic Value: N57.96
Latest Cash Div: N1.84
By: Jeariogbe Tunde Segun (Equity Analyst)
Key Financial Tickers:
- This report observed the full year financial performance indices of Guinness Nigeria Plc for the period ended 30th June, 2018. This was valued by comparing same with similar quarter financial in 2017
- Kindly note the increase in the company shares outstanding within the two period compared in this report.
- Recall that the company undertook a right issue of 684,494,631 ordinary shares of 50k each at N58 per share. This was done on the basis of 5 new ordinary shares for every 11 ordinary shares held as at the close of business on 15th March, 2017.
- According to the offer report, the said rights issue was oversubscribed by 116%. On the strength of this, at listing of the right issue, the share outstanding of the company moved from the previous 1,505,888,188 to 2,190,382,819. Please note that the right was listed on the floor of the exchange on October 2017 after the release of 2017 full year performance indices.
Guinness Nigeria Plc Strength
- Guinness is one of the leading alcoholic and non-alcoholic beverage companies in Nigeria with the dominant market share in the stout segment.
- The Company’s strong market share in the brewing industry in Nigeria is supported by a good brand name, technical & product quality assistance from its parent company and an improved Route to Market (RTM) strategy.
- Well established and diverse brands
- Qualified management team
- Strong support from parent company – Diageo Plc
- Dominant leader in the stout market
- Good cash flow
Guinness Nigerian Plc Weakness
- Inadequate working capital
- Declining profitability that requires improvement
Guinness Nigeria Plc Challenges
- Weak operating environment
- Higher raw material cost as a result of devaluation of the local currency
- Stiff competition for products in the value segments
- Lower consumers’ effective disposable income
Corporate Figures
- The company- Guinness Nig Plc recorded higher Turnover (TO) for the just concluded financial year as against 2017 TO. Total turnover for the year was estimated at N142.97 billion, this is 13.55% above the N125.91 billion reported in 2017
- After considering all necessary expenses, N13.386 billion was achieved as Operating Profit for the year, this is same as 31.41% over the N10.186 billion operating profit posted last year
- Finance Income made through the 2018 was estimated at N2.201 billion as against N2.253 in 2017
- Meanwhile, Finance Cost was N5.644 billion compare to the N9.777 billion last year. Please understand the reduction in Finance Cost was enhanced by the new funds raised through the Rights Issue mentioned above
- After adding Finance Income and Subtracting Finance Cost, the management of Guinness reported N9.943 as the Profit before Tax for the year this is 273.51% above similar figure in 2017 financial document
- Having deducted Tax Expense for the year, Total Income reported for the year stood at N6.717 billion as against N1.923 billion is similar session of 2017. Please note that the difference between the two figures is N249.20%
- Similarly, Total Comprehensive Income was dipped by defined benefit plan accrual loss, patched by Tax credit on other comprehensive loss, thus, the figure is estimated at N6.685 billion compared to N1.888 billion in 2017
- Retained Earnings improved over the period by 17.51%, from N33.228 billion to N39.045 billion
- Total Assets grew by marginal 4.94% to N153.254 billion compared to the N146.038 billion last year
- Nevertheless, Total Liabilities outstandingly dipped to N65.666 billion, same as 36.30% below the N103.095 billion posted at the end of 2017 financial year
- Improving by 103.96%, Net Assets climbed to N87.588 billion from the previous N42.943 billion reported in 2017
Liquidity/Risk Ratios
- Commendably, the firm stood an admirable point in its Latest Debt to Equity Ratio. Presently, we have estimated debt to be 9.27% of Equity this is 84.64% below the industrial average of 60.35%. We expect this to further boost investors’ confidence in the company
- Guinness Liquidity stand was further established by its Current Ratio estimated above unity at 1.27x standing above the industrial average at 1.07x. Please understand that this is a confidence boost to its suppliers and other creditors
- Fairly above others in the industry, beta value of 0.99 as against 0.65 industrial average indicate lower volatility than the market
- Although far below the industrial average of 2.73x Guinness still have enough strength to service its interest yielding liabilities as at when due. Please note that it is strictly advised that, unless the company improved its financial strength, assessing interest yielding liabilities should done at the highest confidence of profitability.
Profitability Ratios
- Cost of Sales margin is currently estimated at 65.99% 7.08% above the 61.63% estimated last year.
- Profit before Tax margin is 6.95% more than thrice of the 2.11% margin estimated from the 2017 financial data
- Similarly, Profit margin tripled that of Q1-2017. We have currently estimated N4.70% as against the previous N1.53%
- Return on Average equity is currently estimated at N7.67% far above the 1.32% achieved in 2017
- Return achieved on Average Assets is now 4.38% as against 1.32%
- This confirmed higher profitability rating by the management of Guinness Nig. Plc. We are of the opinion that despite the improvement achieved in the company’s profitability ratios, more effort should be put into the building of this ratios, as this further confirms both the effectiveness of the company and its management
Efficiency Ratios
- Testing the management efficiency, the Asset Turnover was gauged, the Ratio improved marginally by 8.20% from 86.22% to 93.29%.
- Also tested was the Equity Turnover, which currently stood at 163.24% as against the 293.23% estimated in 2017. Please note that the newly raised capital through right issue further impacted the drop
- In other words, the equity was multiplied 1.75 times through the year 2018 financial activities, far below the 3.40 times in 2017.
- It was also estimated that Fixed Assets turnover is same as 144.94% above the 141.78% estimated in 2017
Investment Ratios
- Following same trend as in the company figures, the amount earned per unit Guinness Nig Plc through the 2018 financial performance, tripled by 140.07% against the comparable period of 2017. The current EPS estimate is N3.07 compare to N1.28
- The said EPS produced a yield of 3.81% of the current market price as at the time this result was unveiled to the market
- Price Earnings Ratio (PE/Ratio) is currently estimated at 26.25x as against the previous 62.05x. Although this is mainly used in confirming investment recouping time, it is also a measure of investors’ sentiments level on the share price of Guinness Nig Plc; going by the reduction observed, it implies reduced sentiments
- Two ratios confirming an overpriced position of each share of Guinness share price on the floor of the Exchange are the Price to Book Value (P/BV) and the Book Value (BV).
- Since P/BV stood above one (1) it implies that the share unit is theoretically overpriced. Confirming this further is the estimated BV of N39.99 as against the market price of N80.50 (as at the released of the current full year result).
- Nevertheless, going by the height of sentiment controlled by the company, we arrived at a higher price as shown below
- Please note that the N1.84 cash dividend reported by the management of the 2018 financial year is same as 60% of the amount earned per each unit of Guinness shares.
- Thus, we have estimated a Sustainable Growth Rate of 3.07%.
Valuation
- Our analysis revealed Guinness as a company with good financial condition and strong capacity to repay obligations on a timely basis.
- Nevertheless, since our analysis is strictly programmed to guide investors through the process of achieving the best returns from their investments, we have been conservative in our valuation of each unit of Guinness Nig Plc shares.
- Thus, we valued each units of its shares for 96, this is an overpriced condition when put side by side with the current market price of the company’s shares.
- Nevertheless, due to the growth noticed in its performance in recent times, and the financial strength achieved through the last right issue, we have Rated Guinness shares a Hold.
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