Brewers and Unilever Nigeria are gaining market share and they have recorded the fastest gross profit expansion in the consumer goods space after the hike in key products propelled sales.
Guinness Nigeria’s gross profit margin rose to 8.75 percent basis point to 32.10 percent as at September 2021, while International Breweries and Unilever’s margins increased by 5.62 basis points and 4.92 basis points to 21.80 percent and 27.02 percent respectively, according to MoneyCentral calculations.
That compares to with (1.75) basis points reduction in Cadbury’s gross margin; Nestle, (-3.60) basis points; Flour Mills, (-3.75) basis points; Nigerian Breweries, (2.69) basis points; Honeywell Flour Mills, (-5.56 percent); Dangote Sugar (-2.48 ) basis points, and Nascon Allied, (-088) basis points.
A grandiose expansion in the margin means these three firms are efficient in converting sales to profit.
Gross margin is net sales less the cost of goods sold (COGS). In other words, it’s the amount of money a company retains after incurring the direct costs associated with producing the goods it sells and the services it provides. The higher the gross margin, the more capital a company retains, which it can then use to pay other costs or satisfy debt obligations.
While International Breweries posted net loss of N13.52 billion as a result
of spiraling finance cost, it has an attractive valuation and the company could par losses if it continues to record strong revenue growth and reduces debt.
International Breweries has a price to sales ratio of 0.87, which is lower than the 0.873 industry benchmark.
The Price-to-Sales Ratio (P/S) measures the value of a company in relation to the total amount of annual sales it has recently generated. Often referred to as the “sales multiple”, the P/S ratio is a valuation multiple based on the market value that investors place on the revenue belonging to a company.
It is a valuation metric used to value a company with no track record of profit, or an entity that has not turned the path of profitability yet.
Guinness Nigeria has made more money from core operations than peer rivals as operating margin expanded by 11.75 percent to 13.75 percent as of September 2021, the largest expansion among consumer goods firms tracked by MoneyCentral.
Analysts at Chapel Hill Denham say Guinness has a propitious 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.
The majority of consumer goods are not impervious to rising cost of production that undermines margins and prevents them from turning each Naira into higher profit.
While the gross domestic products expanded by 4.03 percent in the third quarter on the back of gradually reopening of the economy that spurred business activities, incessant devaluation of the currency and inflationary pressures cast a pall to future earnings of consumer goods firms.
In a pessimistic note that sent chills down the spine of policy makers, the World Bank said inflation may push 91 million Nigerians below poverty lines.