SAT 28 AUG, 2021-theGBJournal- GUINNESS published its 2021FY audited results after market close on Thursday (August 26), delivering EPS of NGN0.57 in 2021FY vs Loss Per Share of NGN5.74 in 2020FY.
The positive surprise in the EPS was supported mainly by the strong revenue growth amidst the marginal decline in net finance cost. On the 2021FY EPS of NGN0.57, the board has proposed a final dividend of NGN0.46/s, equating to a yield of 1.5% on the last closing price (NGN31.00 on August 26).
Revenue grew by 53.7% y/y in 2021FY (2020FY: -20.6% y/y) – the highest annual growth on record, following better-than-expected acceleration in revenue growth from its Nigerian (+99.1% y/y) operations.
We believe the surge in revenue is indicative of the base effect from the prior year increased consumer demand following the full reopening of on-trade channels (bars, lounges, clubs and dine-in restaurants), which represents a major part of the consumption of the company’s products, and aggressive price increases across its product lines.
In addition, we believe the reopening of the Benin site to allow for the running of its Spirit and packaging lines also supported revenue growth.
Gross margin declined to 28.5% in 2021FY (2020FY: 31.9%); this was driven by the surge in COGS (+61.5% y/y), which outpaced revenue growth (+53.7% y/y). We attribute the weaker margin to cost pressures from the double-digit inflationary environment and FX illiquidity constraints.
OPEX rose by 11.3% y/y to NGN36.56 billion in 2021FY (2020FY: NGN32.86 billion), driven by increased spending on advertisement and promotional activities as Marketing and Distribution expenses rose by 40.8% y/y.
On the other hand, Other income grew 104.7% y/y to NGN1.03 billion (2020FY: NGN0.50 billion). This, combined with the growth in gross profit (+37.1% y/y to NGN45.71 billion in 2021FY) was enough to offset the rise in OPEX. Consequently, EBIT and EBITDA printed NGN9.87 billion and NGN18.46 billion in 2021FY compared to negative EBIT and EBITDA of NGN12.83 billion and NGN1.88 billion in 2020FY.
Elsewhere, net finance cost declined by -3.3% y/y to NGN4.10 billion in 2021FY, as finance income surged by 75.8% y/y to NGN0.53 billion, offsetting the modest increase in finance costs (+2.0% y/y to NGN4.63 billion in 2021FY)
Furthermore, PBT came in at NGN5.77 billion in 2021FY vs Pre-tax Loss of NGN17.07 billion in 2020FY. Following the tax expense of NGN4.51 billion, which was affected by under-provisions from previous periods (NGN1.50 billion), PAT printed NGN1.26 billion in 2021FY (vs Loss after Tax of NGN12.6 billion in 2020FY). Overall, EPS came in at NGN0.57 in 2021FY compared to the Loss Per Share of NGN5.74 in 2020FY.
Comment: We are impressed with GUINNESS’ 2021FY performance as the company recorded a positive EPS compared to the Loss Per-Share reported in 2020FY. The company’s performance reflects management’s strategy to focus working capital and marketing investments towards categories that command market leadership and pricing power, namely spirits, ready-to-drink and premium beer.
While we are concerned about the challenging operating environment given double-digit inflation and pressured consumer spending, we are positive that the recovery in demand from on-trade channels and its improved working capital management will help to sustain its profitability. The stock is up 63.2% year-to-date.-With Cordros Research
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