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Wednesday, March 29, 2023

Guinness Nigeria Turns Doubters to Believers as Earnings Outperform Peers in Africa

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The global brewery industry was hardest hit by the coronavirus pandemic which significantly dealt a great blow on earnings.

Drinkers could not go to the bar and there was restriction on social gathering, which meant lovers of pleasure were unable to congregate in bars, hotels, and cinemas.

It was a dark period that investors in fear and trepidation, and more regrettable brewers in Nigeria had been reeling from inflationary pressure, currency devaluation, deteriorating consumer spending, decrepit infrastructure, before the advent of the virus that killed millions of people across the globe.

Despite these challenges however, Guinness Nigeria came out from the blues and recorded strong earnings, outperforming peer rivals across Africa in the Full Year 2021 period.

Guinness Nigeria shares are one of the most attractive on the continent, which is an entry point for investors to buy the company stocks as the relaxation of lockdown measures that has buoyed crude oil price and underpin business activities are expected to lift consumer confidence.

It showed resilience as it reported sales volume (39 percent), and that compares to South Africa, (8 percent); African Regional Market, (-12 percent), and East Africa, (13 percent), according to data compiled by Chapel Hill Denham Limited.

Guinness Nigeria’s net sales were up 35 percent, and that compares to South Africa, (-7 percent); African Region Market, (2%), and East Africa, (2%).

The company is pulling its strings in the local market, outperforming competitors as its revenue grew the fastest. Nigerian Breweries’ revenue grew by (29.50 percent), and International Breweries, (27.20 percent).

Analysts at Chapel Hill Denham say Guinness has a favorable future because it has embarked on aggressive expansion like the acquisition of 25 acres commercial property in Ogba Ikeja Lagos to boost production.

With higher volumes, prices, and lower net finance costs expected to bolster profit, shareholders of the brewer will be paid a higher dividend this year.

Of course, Guinness is increasing its share of the Nigerian alcoholic market with its “spirits” business, and other companies are only playing catch up.

Every bar, either the local ones by the roadside or five-star hotels have Orijin Spirit Mixed Drink, Orijin Bitters, Smirnoff Ice Double Black with Guarana, Smirnoff Vodka, Orijin Zero and Orijin Herbal Drink, Baileys Delight, Gordon Moringa, McDowells, among others.

Guinness share price has a year to date gain of 55.80 percent, significantly outperforming the NGX ASI and NGX 30 index with year to date of 1.10 percent, 2.67 percent respectively.

It shares are attractive compared to global peers, with a price to earnings ratio of 10 times, and that compares with Chongqing Brewery (57 times); Budweiser Brewery, (36.40 times); Waterloo Brewery, (32.10 times); Boston Beer, (29.50 times); Royal Unibrew, (27.90 times); Heineken Nv, (27.40 times); Société Des, (22.60 times), and Heineken Holdings, (22.40 times).

Guinness Nigeria and other consumer goods firms are incurring huge costs of production caused by inflationary pressures, higher commodity prices, currency volatility, and energy costs.

The kidnapping and insecurity in the Northern region and flood will weaken harvest, while the United States Department of Agriculture forecast higher prices for grains in 2021-2022.

The gradual economic recovery since the start of the year has strengthened investors’ optimism that Guinness earnings will continue on a growth trajectory all through 2020.

The Nigerian economy grew by 5.01 percent year on year in the second quarter of Q2 2021, according to recent data from the National Bureau of Statistics (NBS).

The economic outlook is positive and there are expectations of improved liquidity in the foreign exchange market as the government successfully raised $4 billion in Euro bonds that was oversubscribed by investors, and that should take the external reserve to $40 billion.

The headline Purchasing Managers’ Index (PMI) registered at 52.3 in September, little- change from 52.2 in August, and indicative of a 15th consecutive monthly expansion, according to Stanbic IBTC Purchasing Manager Index.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

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