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Guinness gains on NSE despite N17 billion pre-tax loss

The shares of Guinness Nigeria Plc, the second-largest brewer by market capitalization, closed the trading session for last week on a positive note, with the shares gaining 30 kobo despite a pretax loss of N17 billion in 2020, according to its financial report.

According to trading activities on the floor of the Nigeria Stock Exchange last week, the share price of Guinness went down cumulatively by 11.54% on Friday 28th and on Monday 31st of August. When disaggregated, this translates to 9.29% and 2.47% declines respectively. The declines came amid the loss reported in the company’s financial results, released to the public domain on Friday 28th, August.

Buying pressure drove the shares of Guinness higher to close the week 2.1% and 4.71% higher than N14.15 and N13.80 the shares closed at on Friday 28th and Monday 31st, August, respectively. This increase indicates a price rejection at N13.80 on Tuesday, which is 6.15% higher than the low of N13.00 37 days ago.

Subsequently, the 65 kobo correction from Tuesday till the end of the trade on Friday put the shares higher, when compared with the N14.15 the stock closed at on Friday, with previous losses retraced by 4.71% or 65 kobo.

Ideally, it is imperative to note that this is the first time this year that a double price rejection/correction will be spotted in the price activity chart of Guinness, with the previous low of N13.00, a resistance from 30 days ago, lower than the recent rejection at N13.80 on Tuesday.

Also, It is important to note that Guinness share price has fallen by 51.91% YTD from N30.05 on January 2nd. In the same vein, it has also lost 5 kobo since the market opened for the third quarter, 65 days ago.

Underlying fundamentals of Guinness

Nairametrics had earlier reported that Guinness Nigeria Plc posted a loss after tax of N12.57 billion for the period ended 2020, owing to the knock-on effect of the COVID-19 lockdown on the trade segment of the business across all markets, and drawback in production, sales and revenues.

Also, the book value and the bottom line of the company were affected by the comprehensive review of certain categories of assets, which were generating suboptimal returns. This is in line with the company’s long-term strategy of delivering value to shareholders. The move led to N13.8 billion impairment loss on financial assets and PPE.

Key changes in view

As at 30 June 2020, the company has a five-year outstanding related party loan of $22.5 million included in loans and borrowing which expires next year. The Naira equivalent is N8.7 billion million (2019: N8.295 million). The loan has an interest rate of 3 months LIBOR plus 475 bps.

Guinness is thus faced with the decision to roll over the loan, but is yet to decide whether to keep it as a dollar debt or convert to a local-currency loan.

With sales and profit targets unmet, the company will prioritize stout, spirit and malt brands in 2020 and focus less on lager, as it aims to grow the business and cushion the impact of the COVID-19 pandemic on operations.

ADAPTED FROM NAIRAMETRICS

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