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Wednesday, June 7, 2023

Investors Pay Higher Premium For Guinness Over Nigerian Breweries

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Investors are paying more premium to buy Guinness Nigeria’s stock over Nigerian Breweries as the return of foreign investors back to the market is expected to be catalysts for both brewers whose shares are attractive.

Guinness has delivered a compelling return of 243 percent in the past three years, while Nigerian Breweries (NB) has delivered 103 percent, according to data from Chapel Hill Denham Limited.

Historically and now, Guinness trades at a higher and absolute valuation over NB, with the premium that investors pay to buy Guinness over NB peaking at 160 percent between the 3rd and 7th of November 2022.

Analysts at Chapel Hill Denham are of the view that both brewers will benefit from the return of foreign investors to the equity market because they are strong consumer facing companies with solid support from their parent companies.

Diageo plc, a British multinational alcoholic beverage company, with its headquarters in London, England, owns majority stake in Guinness Nigeria; while Heineken, produced by the Dutch brewing company Heineken N.V., has controlling interest in NB.

Foreign investors have steered clear of the Nigerian equity market because of an opaque currency regime, rising inflation, insecurity, and lack of transformation agenda on the part of the president Buhari led administration.

The capital flight has significantly undermined foreign direct investment (FDI).

Foreign investment related transactions on the exchange fell to 14 percent of the total value of N1.66 trillion recorded in the first half of 2022.

Guinness shares have gained 73.20 percent so far this year, outperforming the NGX ASI index return of -0.22 percent.

Analysts at Chapel Hill Denham led by Tajudeen Ibrahim say this is one of the periods investors can pick both brewers at a relatively cheap valuation.

“Guinness is trading at EV/EBITDA of 3.80x while NB is trading at 5.10x, indicating that Guinness is cheaper than NB, ” said the analysts.

The predilection for Guinness stocks by investors stem from the company’s strong margins and consistent earnings growth. Of course, the spirit segment that has been a success adds more strength to its margins.

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