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Guinness Nigeria Plc published its 2022FY audited results after market last week, delivering a Q4-22 standalone EPS of NGN0.17 (vs Loss per Share of NGN0.27 in Q4-21).
For 2022FY, the EPS came in at NGN7.15 (+1146.8% y/y). The company’s achieved EPS, which is slightly below our estimate (-4.0% variance), was driven mainly by solid revenue growth (+28.9% y/y) and a lower net finance cost (-94.5% y/y). On the 2022FY EPS of NGN7.15, the board has proposed a final dividend of NGN7.14/s, implying a 99.9% dividend payout ratio and a yield of 7.9% on the last closing price of NGN90.50/s.
Revenue increased by 28.9% y/y in 2022FY (2021FY: +53.7% y/y), buoyed by strong double-digit growth in its strategic focus brands (Malta Guinness and Guinness), local and imported spirits, and the ready-to-drink category. The growth across product categories benefitted from price increases, in spirits and beer categories. Similarly, on a quarter-on-quarter basis, revenue grew by 4.2%; the impact of a favorable brand mix.
Gross margin expanded (+664bps) to 35.1% in 2022FY as revenue growth (+28.9% y/y) outpaced the growth in the cost-of-sales (+17.0% y/y). The growth in cost-of-sales was due to (1) elevated inflationary pressures, (2) increased sales volume growth, (3) FX illiquidity constraints, (4) air-freight cost increases, and (5) a shift towards more expensive can products.
Operating expenses grew by 40.3% y/y to NGN51.06 billion in 2022FY (2021FY: NGN36.38 billion), driven by increased spending on advertisement and promotional activities as marketing and distribution expenses rose by 50.2% y/y and 35.8% y/y, respectively. Consequently, the growth in other income (+166.1% y/y to NGN2.74 billion) combined with the growth in gross profit (+59.0% y/y to NGN72.66 billion in 2022FY) proved sufficient in offsetting the impact of the rise in OPEX. Accordingly, EBIT and EBITDA increased by 142.1% y/y and 76.1% y/y, with 11.6% (+214bps) and 15.7% (+674bps) margins, respectively.
Net finance cost declined significantly (-94.5% y/y) to NGN225.90 million, as finance income surged by 259.8% y/y to NGN1.90 billion, amid a 54.0% y/y decline in finance cost to NGN2.13 billion. For context, on the higher finance income, Management highlighted the investments of excess Naira cash in fixed deposits with banks at high rates.
Pre-tax profit grew by 310.3% y/y to NGN23.67 billion in 2022FY (2021FY: NGN5.77 billion). A tax expense of NGN8.02 billion resulted in a PAT of NGN15.65 billion (2021FY: NGN1.26 billion), representing a 1146.8% y/y increase.
Comment: We are impressed with GUINNESS’ 2022FY performance which continues to reflect management’s strategy of focusing working capital and marketing investments on categories where it commands market leadership and pricing power; specifically, spirits, ready-to-drink, and premium beer. In addition, we like that the company sustained its drive to lower finance costs which have remained supportive of earnings. While we acknowledge the continued challenging operating environment with double-digit inflation and weak consumer spending, we are optimistic about the company’s ability to sustain its topline growth in Q1-23, deliver better margins and continue delivering value to its stakeholders supported by price increases and resilient demand. Our estimates are under review.
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