Guinness Nigeria Plc’s (GUINNESS) Q1 2024 numbers showed resilience across key performance metrics. The renowned foreign extra stout brewer recorded double-digit Revenue growth of 12.7% y/y to N59.54bn (Q1 2024) amidst the nation’s high inflation which has weakened consumer purchasing power. Sales volumes remained pressured in the face of stiff competition, and as consumers persist in adapting their spending preferences towards essentials. However, we believe the company’s performance will improve in the next quarter (Q2) as holiday season demand drives sales.
That said, as part of the company’s Environmental Social Governance (ESG) efforts to mitigate environmental pollution, production of its sachet mainstream spirit has been stopped. This, in addition to the lingering effects of the fuel subsidy removal and the FX unification policy on demand, may result in a minimal decline in Revenue in the short term especially as there is little room for price increases without a dent to volumes. On the cost side, we expect a minimal rise in cost of sales and operating expenses in coming quarters. Management’s efforts at cost cutting seems to be yielding positive results and Barley (a key input for beer) prices have moderated in recent months, down 34.8% y/y.
We maintain a positive long-term outlook on GUINNESS Nigeria Plc, given its market share size - c.24%, its widely accepted products, improved production efficiency, market strategies and plans by the company’s management to stop importation of some of Diageo’s premium spirits and to pay up dollar-denominated loans to reduce exposure to FX fluctuations. We expect the business to return to profitability in FY 2024e with projected net earnings of N18.4bn. We retain a Buy recommendation on Guinness, with a price target of N93.01/s. We derive our price target using a 60/40 blend of DCF valuation and sector relative valuation estimates.