A key market analyst has retained underperformance rating on Guinness Nigeria irrespective of buoyant performances the company posed in its recently released Q2 2018 result.
FBNQuest Capital Limited in its recent rerk on the company’s performance e and forecast, maintained under performance rating, as good earnings were hedged by high operating and interest expenses.
.According to FBNQuest “ Having underperformed the broad index by 23% last year, the shares are up 17% this year (NSEASI: 14%). Guinness shares are trading on a 2018E P/E multiple of 31.4x for EPS growth of 57.5% y/y in 2019E. From current levels, the shares show a -17% downside potential to our price target. We have maintained our Underperform rating on the stock”.
On increase to earnings estimates, the report noted that Guinness Q2 2018 ended –Dec 31 2017 results were stronger than expected. . it however pointed that
“Although sales were in line and gross margin was softer, these were offset by interest expense and operating expenses surprising positively. As such, we have increased our earnings estimates by 11% on average over the 2018-19E period.”
The analyst company said that its long term vie of the company has remained unchanged as its price target at N91.3 remains unchanged because “our long term view of the company has not changed significantly”
The report noted that Guinness Nigeria scored many positives in the Q2 result, ·as major key P&L items in Q2 2018: Q2 2018 sales grew by 12% y/y to N40.7bn. PBT and PAT advanced to N3.5bn and N2.1bn compared with pre-tax and after-tax losses of -N2.4bn in the corresponding period of 2017.
The strong y/y growth in earnings was driven by a gross margin expansion of 601bps y/y to 33.5% and a 70% y/y reduction in interest expense.. On a sequential basis, sales grew by 36% q/q, largely driven by seasonally stronger sales in the final quarter of the year. Thanks also to the clean-up of the firm’s balance sheet, PBT and PAT accelerated by 50-85x.
However, outlook for the sector remains broadly positive as top line growth is expected to be driven by the value segment.
Stories by Bonny Amadi