26 October 2021

GGBL 1Q2021/22 results

In brief

Guinness Ghana Breweries (“GGBL”) released its unaudited results for the three months ended 30 September 2021 (i.e. 1Q2021/2022) late last week and followed up with an investor forum shortly after. While the numbers elicited mixed sentiments as margin compression cast some doubt on the brewer’s recent growth momentum, we were excited to hear management’s confirmation of improved consumption despite the challenging operating environment.

Performance: Contracted Margins

  • Despite the 18.6% y/y rise in revenue, profit after tax declined marginally by 3.2% y/y to GHS 11.1m due to elevated operating costs
  • The depreciation of the Cedi as well as supply chain disruptions also impacted the cost of sales which rose 15.0% y/y to GHS 218.2m, contributing to margin compression
  • Consequently, net profit margin declined by 106bp to 3.8% as did gross profit margin which stood at 23.6% which was a 74bp y/y drop
  • According to management, the 36.2% y/y rise in OPEX was driven by increased efforts to integrate and market new variants

Outlook: Product innovations and Capex expansion to bolster performance

  • We anticipate that the Company’s margin contraction will subside in the coming quarters as a result of the addition of high margin premium brands, such as the new Baileys Delight and Smirnoff Chocolate Vodka to GGBL’s brand portfolio
  • In addition to the above, we anticipate stronger revenue growth as we enter the festive season
  • The above notwithstanding, we believe operating expenses will remain elevated in the coming quarters due to management’s indication of continuous investments in activation campaigns for ready-to-drink products and the Smirnoff brands
  • We also anticipate CAPEX intensity to unwind gradually as the recently completed GHS 145.0m sorghum processing brew-house improves production in Guinness Foreign Extra Stout, Malta Guinness, and Guinness Smooth. According to management, production is expected to rise by about 150.0% in those brands
  • Furthermore, we expect this sorghum brew-house to minimize GGBL’s reliance on imported cereals such as barley and malt which will impact the cost of sales positively

Valuation: Under Review

  • We are in the process of re-initiating coverage on GGBL and have therefore placed our recommendation under review
  • GGBL is however trading at a PE of 7.8x and PB of 1.7x