Guinness Nigeria N9.94 billion inventory reflects inability to push sales…Analysts

Irrespective of Guinness Nigeria’s rise in revenue to N59.49 billion in half-year 2017 from ₦49.83 billion in Q2 2016, analysts have expressed concern on the company’s 52.92 percent rise in inventory.

The company’s earnings update for Q2 ended 31 December 2016 recently released by the Nigerian Stock Exchange (NSE) which showed a positive  growth  of  19.37 percent  in  revenue  base  to ₦59.49  billion, against  ₦49.83  billion , further reported a decent drop of 24.01 per cent in marketing and distribution  expenses  to ₦9.94  billion  from ₦13.08 billion in Q2’2016.

Listed under the consumer goods sector of the NSE, Guinness Nigeria 2017 half year result revealed that profits expected  to be  subdued in  the first half of 2017 saw Guinness Nigeria report a loss after tax of ₦4.66  billion, against  ₦1.17 billion profit reported in Q2 2016.

Having reported a  loss after  tax over the last  three results  released to  the market,  an analyst has hinged recovery to be on long term. Earnings Per Share (EPS) for the Half year 2017 stood at ₦3.10 billion, from N0.78 in Q2 2016, while net asset per share stood at ₦24.07 against ₦29.68 in first half 2016.

Investment experts research team, Capital Bancorp remark on the company’s 2017 half year result noted that even as admin expenses during the period rose by 17.44 per cent to ₦6.06 billion from ₦5.16 billion in Q2’2016, the cost of sale also ballooned by 54.56 per cent to ₦43.94 billion, from ₦28.43 billion for HY’2016.

“In our view, the company’s ability to drive growth in top line comes as a welcome development but the need  to  re-strategize ways  in  keeping  cost  elements  in  check  to  improve  profitability  remains vital” the investment analyst company noted “we  do  not anticipate  a  recovery  in  the  short  term  as  headwinds responsible  for the company’s inability  to  grow  and  report  profits  remain  visible,  thus  we  remain  bearish  on  the short-term outlook  of  the  company”

The analyst company commended Guinness for its ability to drive growth in top line, but noted as vital, “the need  to  re-strategize ways  in  keeping  cost  elements  in  check  to  improve  profitability.”

Daily Times Nigeria recalls that Guinness Nigeria shareholders recently approved the raising of ₦40 billion via  a rights  issue,  with hopes  to improve  its balance  sheet position  which has suffered a  cash flow  squeeze due  to years  of declining  sales and  reduced profits.

The result further showed that finance costs  weighed heavily  on income for the period, while the company’s loss on foreign exchange (FX) transactions  outweighed the  gains from  FX  transactions.

According to the result, finance income for the period stood at ₦1.53 billion, this was against ₦0.48 billion for HY’ preceding year, representing a rise of 218.75 per cent. FX gains accounted for ₦1.25 billion of finance income against ₦0.16 billion for 2017 half year.

Finance cost also reported a significant surge of 176.47% to ₦6.11 billion (vs. ₦2.21 billion for HY’17). Loss on FX transactions accounted for 50% (₦3.06 billion) of total finance cost for the period against nothing reported in HY’16.

Meanwhile, a cross section of analysts has projected further downward trend in the company’s share price as most investors will exit  their positions  in reaction  to its  poor results.