In Q2-22, revenue grew by 45.7% y/y (Q1-22: +58.1% y/y) underpinned by the brewer’s efficient route-to-consumer strategy, significant investments in its brand, price increases across its product categories, and improved sales mix, all of which drove volume growth (+13.0% y/y) in the period. Despite the surge in cost of sales (+31.3 y/y) and OPEX (+71.4% y/y), PAT surged by 811.2% y/y to NGN4.78 billion, translating to an EPS of NGN2.18 in Q2-22. Consequently, H1-22 EPS came in at NGN4.03 (vs Loss per share of NGN0.14 in H1-21). Looking ahead, we expect the favourable price/volume mix across its product portfolio and GUINNESS robust balance sheet management to remain supportive of earnings in 2022FY. Following the impressive topline growth in H1-22 (+50.8% y/y to 109.13 billion), we have revised our 2022E revenue growth estimate upwards to 47.5% y/y. After making adjustments to our forecasts, we have raised our target price to NGN88.54/s and re-rate the stock a “BUY”. The new target price implies an upside potential of 36.2% compared with the current price (NGN65.00/s). Accordingly, on our 2022E EPS of NGN6.32 (+1003.4% y/y), we estimate a DPS of NGN4.11, implying a dividend yield of 6.3% based on the price of NGN65.00/share (as of February 17).
Portfolio Optimisation and Pricing to Support 2022E Revenue: The brewer’s portfolio optimisation strategy drove solid growth across its product categories as the Malts (+149.0% y/y), RTD’s (+80.0% y/y), premium spirits (+59.0% y/y), mainstream spirit (+38.0% y/y), and Guinness stout (+33.0% y/y) categories all delivered impressive growth. We believe the strong revenue growth was supported by resilient demand given the reopening of on-trade channels (bars, clubs and event centres). In its H1-22 earnings call, management attributed the strong sales value to a combination of pricing (+28.00ppts), mix (+10.00ppts), and volume (+13.00ppts). For 2022FY, we expect this combination to continue to support the momentum in revenue, given the brewer’s overarching strategy (optimising its route-to-consumer, innovating at scale and improved cost control), in addition to increased capacity to produce spirits. Pertinently, we estimate topline growth of 45.7% y/y to NGN236.61 billion in 2022E. Our expectation is hinged on (1) resilient consumer demand, (2) improved trade outlet coverage as the brewer continues to optimise its route-to-consumer strategies, and (3) further price increases in 2022FY to offset the higher costs pressures stemming from inflation, FX illiquidity challenges and the newly introduced NGN10.00/litre excise duty on carbonated drinks.
Higher Prices and Cost Efficiencies to Sustain EBITDA Margins in 2022E: For 2022E, we estimate EBITDA growth of 85.6% y/y and forecast EBITDA margin will moderate to 14.5% by year-end from 16.4% in H1-22. In H2-22, we expect pressures on margins to be partly offset by the price increments implemented at the start of the year amid efficiency gains associated with the company’s recent expansion on its spirit’s business’ capacity.
H1-21 EPS Surprises Positively on Solid Revenue and Bottom-line Performance: On an annualised basis, H1-22 EPS is 602.7% ahead of the 2021FY EPS of NGN0.57. The growth in EPS was driven mainly by the impressive topline growth (+50.8% y/y) and higher gross margin (+780bps), both of which neutered the impact of the surge in cost of sales (+35.1% y/y) and OPEX (+56.0% y/y). Given the impressive run rate as of H1-22, we forecast an EPS growth of 1003.4% y/y to NGN6.32 in 2022E (Consensus: NGN5.84).
Valuation: We valued GUINNESS stock using a combination of the DCF and relative valuation techniques. Following the revisions to our estimates, the net impact of the changes to our model is an increase in our target price to NGN88.54/s (previously: NGN36.57/s). Based on the upside potential of 36.2%, we have changed our rating from a “HOLD” to a “BUY”. On our estimates, GUINNESS is currently trading on a 2022E P/E of 10.3x, a steep discount to its five-year historical P/E average of 23.8x and NB’s five-year historical P/E average of 23.4x.
