Economy
Guinness Nigeria to Maintain Strong Market Position Amid Cost Pressures
By Dipo Olowookere
One of the leading brewery companies in the country, Guinness Nigeria Plc, has been tipped to maintain its strong market position despite the various challenges it is facing at the moment.
Share price of the company at the Nigerian Stock Exchange (NSE) has plummeted lately and at the close of market on Monday, it was down by 30 kobo to sell at N18 per share.
Last week, a local rating agency, Global Credit Ratings (GCR), assigned national scale issuer ratings of A+(NG) and A1(NG) in the long term and short term respectively to Guinness Nigeria Plc, with the outlook stable.
In a statement obtained by Business Post, GCR said Guinness Nigeria, which controls about 22 percent of the market share in the country, should remain relevant in the space as a result of its “well-diversified portfolio of strong brands spanning lager, stout, spirits and non-alcoholic beverages.”
However, it warned that heightened competitive pressure, coupled with the tough operating environment will continue to affect the organisation.
Guinness Nigeria is a subsidiary of Diageo Plc, a global brewing company with operations in more than 180 countries.
With Nigeria being one of its major markets, Diageo is committed to providing technical, strategic and funding support to the firm, which experienced growth in revenue supported by an increase in sales volume and addition of some new local products to its portfolio.
“Like other industry players, Guinness Nigeria has experienced rising margin pressure, triggered by the depreciation of the Naira, which has impacted the prices of imported raw materials and other locally sourced inputs.
“Cost pressures are expected to worsen in the medium term given the uncertainties in the Nigerian foreign exchange market, coupled with inability to fully pass on additional costs to consumers.
“This notwithstanding, management is confident that earnings margins will stabilise due to the efficiency initiatives, centred on cost rigour and high margin products, rather than volumes,” GCR said.
It said the spike in debt at FY16 and FY17 saw net gearing rise above 80 percent and net debt to EBITDA over 190 percent, from a low of 31.4 percent and 56.4 percent at FY15.
However, gross debt has reduced substantially since FY18, following the conversions of intergroup loans to equity and part settlement of outstanding bank facilities. Thus, net debt to EBITDA moderated to 86.1 percent at end-March 2020 (3Q FY20), while net debt to equity registered below 18 percent, comparing favourably to its major peers,’ the rating firm said, adding that interest coverage has improved to exceed 4x in FY19.
Later in the year, Guinness Nigeria plans to establish a commercial paper issuance programme to refinance its maturing short-term borrowings, as well as diversify sources of funding. Even when gross debt has been fairly elevated, Guinness has reported moderate gearing metrics.
“Guinness evidences a favourable cash conversion cycle that facilitates strong cash generation and liquidity. Nevertheless, the uncertainties in the currency market has forced the company to increase inventory holding to ensure sufficient raw materials are readily available.
“Access to liquidity remains strong with over N16 billion in unutilised bank debt and $23.1 million of intercompany loans available,” the statement said.
GCR noted that it considers the brewing sector to evidence lower cyclicality, the COVID-19 crisis has elevated downside risks for the sector, given its reliance on hospitality and entertainment to drive volumes, saying it “expects Guinness Nigeria to maintain its strong market position due to its entrenched brands.”
“An upward rating movement is contingent on a sustained growth in revenue and firmer margins that translates into more stable profitability and cash flows.
“Conversely, a worse than anticipated disruption to demand from COVID-19 and/or severe weakness in the consumer market, could see earnings fall substantially.
“Furthermore, excessive debt utilisation would see credit protection deteriorate, leading to a rating downgrade,” it said.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange closed flat on Wednesday, August 5, as the market witnessed weaker trading activity with only two deals executed.
In the midweek session, the volume of securities exchanged by investors dropped 99.9 per cent to 802 units from the 1.6 million units recorded on Tuesday. The value of securities further decreased by 99.6 per cent to N208,240 from the preceding session’s N47.6 million, and the number of deals significantly went down by 93.9 per cent to two deals from the 33 deals recorded a day earlier.
Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 76.9 million units transacted for N5.5 billion.
GNI Plc was also the most active stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
There were no price gainers or losers yesterday.
As a result, the market capitalisation stood unmoving at N2.739 trillion, while the NASD Security Index (NSI) remained unchanged at 4,563.96 points.
By Adedapo Adesanya
The Naira slid against the US Dollar by N2.28 or 0.17 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, August 5, to N1,363.85/$1 from N1,362.55/$1.
The local currency also declined against the Pound Sterling in the official market during the session by N5.97 to close at N1,837.38/£1 compared with Tuesday’s closing rate of N1,831.41/£1, and against the Euro, it crashed by N6.54 to quote at N1,575.25/€1 versus the preceding session’s N1,568.71/€1.
But at the black market, the Nigerian Naira traded flat against the greenback yesterday at N1,400/$1, and also remained unchanged at the GTBank FX desk at N1,373/$1.
The Central Bank of Nigeria (CBN) says rates have narrowed to below two per cent, while the country’s external reserves have risen above $52.5 billion, reflecting the impact of its ongoing monetary and foreign exchange reforms.
CBN Governor Yemi Cardoso, represented by the Acting Director of Corporate Communications and Investor Relations, Mrs Hakama Sidi-Ali, disclosed this on Tuesday during the CBN Fair in Gombe. He noted that reforms introduced since 2023 had significantly reduced the disparity between the official FX market and the parallel market.
“The Naira continues to strengthen, with the spread between official and Bureau de Change rates now below two per cent,” he said, adding that reserves at $52.5 billion were supported by sustained inflows and renewed investor confidence in the economy.
Interbank FX transactions slid as weaker market activities dropped total Dollar volume exchanged to $75.35 million, a 51.8 per cent decline from $156.23 million in turnover quoted at the previous close.
The deals at the NFEM window also fell as data from the central bank put Wednesday’s quote at 82 from 139.
In the cryptocurrency market, major were down as global risk sentiment softened as a key world equity index slipped and chipmakers fell.
The MSCI All Country World Index snapped a five-day run to fall 0.2 per cent as chipmakers retreated on both sides of the Pacific. South Korea’s Kospi, a bellwether for the AI trade, dropped 4.4 per cent.
Ripple (XRP) depleted by 1.7 per cent to $1.05, Binance Coin (BNB) decreased by 1.0 per cent to $594.87, Cardano (ADA) depreciated by 0.9 per cent to $0.1884, TRON (TRX) shrank by 0.2 per cent to $0.3261, Solana (SOL) crumbled by 0.1 per cent to $74.00, and Dogecoin (DOGE) went down by 0.1 per cent to $0.0697.
On the flip side, Ethereum (ETH) gained 2.3 per cent to trade at $1,911.41, and Bitcoin (BTC) rose by 0.8 per cent to $64,759.28, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The domestic stock exchange rebounded by 0.05 per cent on Wednesday on the back of renewed bargain-hunting by investors, though the level of activity waned.
After bleeding for a few days, the Nigerian Exchange (NGX) Limited heaved a sigh of relief yesterday, as the All-Share Index (ASI) gained 109.41 points to close at 244,912.24 points compared with the previous day’s 244,802.83 points, and the market capitalisation garnered N71 billion to settle at N158.087 trillion versus Tuesday’s N158.016 trillion.
Business Post reports that despite the rebound recorded by Customs Street at midweek, the market breadth index remained negative, as there were 20 price advancers and 29 price decliners, implying bearish investor sentiment.
Linkage Assurance appreciated by 9.94 per cent to N1.77, AVA Capital rose by 9.55 per cent to N10.90, Fortis Global Insurance advanced by 7.69 per cent to N2.80, McNichols gained 7.34 per cent to finish at N5.85, and Coronation Insurance surged by 5.51 per cent to N2.49.
Conversely, Honeywell Flour depreciated by 9.94 per cent to N16.30, PZ Cussons gave up 9.94 per cent to trade at N74.75, Zichis crashed by 9.74 per cent to N20.76, Learn Africa slipped by 9.62 per cent to N9.40, and Neimeth tumbled by 8.33 per cent to N8.25.
The busiest equity was FCMB, with a turnover of 369.2 million units valued at N4.1 billion. Chams transacted 46.7 million units worth N201.8 million, First Holdco transacted 43.5 million units for N5.7 billion, Access Holdings sold 29.8 million units worth N778.0 million, and Linkage Assurance exchanged 19.6 million units valued at N33.5 million.
At the close of transactions, market participants bought and sold 824.1 million units worth N25.5 billion in 48,114 deals, in contrast to the 1.6 billion units sold for N28.7 billion in 54,160 deals a day earlier, showing a shortfall in the trading volume, value, and number of deals by 48.49 per cent, 11.15 per cent, and 11.16 per cent, respectively.
