Lagos – It is the yuletide, a time when it is believed Nigerians imbibe much more than any other time of the year. Yet the share price of Nigeria’s second biggest brewer, Guinness is travelling south. This drop is so, despite a return to profit of the maker of the leading stout brand in the country.
After the release of first quarter results in September, the company stock price travelled upwards and rising to N102.5 in a 52 week high from N75.
This represented a 37 per cent jump in the value of the stock. But as of December 29, the stock price has dipped to N94 in a culmination of steady decline since November. Despite the fall in price, the stock has outperformed the market in the last six months, delivering returns of 39 per cent while the All Share Index (ASI) returned 18 per cent.
Data compiled by Bloomberg indicate that the company has a PE ratio of 66.13 to show what investors are willing to pay for a Naira of the earnings of the company.
It also suggests that the stock price may be overvalued and may be in line for correction. This also explains the recent fall in the stock price.
Analysts have had this view since August that the stock will underperform within a twelve months horizon. But shortly after the prognosis, the brewer’s stock price took to flight especially after the announcement of a stock split.
At that time, the stock appreciated by N28.63 or grown 41 per cent to N98.50 on October 3 from N69.87, outperforming the market with a return of 65 per cent in the six months to that date, compared to the markets 39 per cent.
This page had put part of the improvement to the economy exiting the recession and improvements in the manufacturers PMI. The economy had turned the bend at a 0.55 per cent and the PMI was up to 55.3 for the month of September, the highest reading ever for the predictive metric since 2014 to that date.
Meanwhile, the company improved sales and bottom line in the first quarter ending September. Revenues improved by a third to N29.904 billion from N23 billion achieved in the equivalent period in 2016.
As revenue rose, so did cost of sales by 33 per cent to N19.53 billion from N14.68 billion.
This, however, did not erode gross profit, which buoyed at a healthy 24.4 per cent to N10.37 billion from N8.34 billion.
The gladsome news for the company though is that operating profit jumped by a whopping 287 per cent to N2.65 billion from N685 million.
This helped the company turned the bend from pre-tax losses of N2.2 billion to gains of N41.4 million. Since taxes were avoided in the period, net profit was identical to pre-tax profit at N4 1.4 million compared to losses of N2.23 billion in the equivalent period in 2016.
The transition from red to black in the period under review, suggest that the company is set to do better as the effect of exiting the recession and improvement in the manufacturing sector become more widespread.
In the full year ending June 2017, the company had a positive bottom line relative to the equivalent period in 2016.
Revenues were up 23.5 per cent to N126 billion from N101.97 billion. The spike in revenue was despite the economy still in the trough of recession.
This page had seen it as harbinger of what was to come. The recent results confirm our prognosis.
During the full year, despite a rise in cost of sales by a quarter, to N77.6 billion from N60.1 billion, gross profit improved by 15.6 percent to N48.32 billion from N41.8 billion.
This helped in the significant 130.68 per cent rise of operating profit in the period to N10.18 billion from N4.42 billion. But perhaps the biggest highlights of the result are that pre-tax profit and net profit have turned the bend to positive regions.
While pre-tax profit grew to N2.66 billion from a negative N2.35 billion, net profit jumped to N1.92 billion from a negative N2.02 billion.
In the last financial year, the company announced a split in which shareholders bought five new shares for every 11 at a discount.
The Diageo subsidiary said the split was geared at raising N39.7 billion Naira ($109 m) to help reduce its expensive dollar-denominated debt and to support its volume growth strategy”.
Part of the plan, according to reports, was that Diageo, which owns 54 per cent of the company, was supporting the cash call by converting into equity part of a dollar-denominated loan which it granted Guinness Nigeria at the peak of Nigeria’s currency crisis.
The post Not Quite A Good Yuletide For Guinness appeared first on Independent Nigeria.
Not Quite A Good Yuletide For Guinness
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