Guinness Ghana Breweries Plc. (“GGB Plc”) released its unaudited 1H2024/25 financial results on 14 February 2025, revealing an impressive earnings outturn. The company reported an unexpected 199.5% y/y surge in earnings to GHS 83.9mn in 1H2024/25 after a 128.0% y/y plunge in bottom-line to a loss of GHS 3.0mn in 1Q2024/25. The sharp upturn in earnings was largely driven by a significant 35.7% y/y surge in revenue to GHS 1.6bn and a plunge in finance charges by 37.7% y/y to GHS 17.5mn. Management revealed that the surge in revenue was driven by increase in sales volume and revenue growth management initiatives. In our view, the decline in finance charge was as a result of a 77.8% y/y plunge in short term borrowings to GHS 12.6mn. Cost of sales surged by 34.0% y/y to GHS 1.3bn, attributed to inflationary pressures on raw materials and higher distribution cost. Overall, GGB Plc’s strong revenue momentum, declining debt burden and earnings recovery position the company for sustained near-term growth. We anticipate that moderating inflationary pressures will help ease input cost pressures and operating expenses in the near term. Additionally, the Castel Group’s acquisition of Guinness Ghana Breweries Plc signals a strategic shift from Diageo’s premium-focused model to a mass-market, cost-efficient approach, which we expect to further enhance cost containment and operational efficiency in the medium-term.

Outlook: Promising outlook for revenue growth but sustained grip on cost is necessary for earnings

• GGB Plc has maintained consistent revenue growth, driven by strong consumer demand and a well-diversified product portfolio that continues to strengthen its market penetration. The company’s broad product mix enhances customer acquisition and brand loyalty, reinforcing its competitive positioning and supporting long-term revenue expansion.
• As inflation eases and consumer confidence strengthens, we expect discretionary spending on beverages to increase, benefiting GGB Plc’s topline performance.
• The transition of Smirnoff Ice from disposable to returnable glass bottles will be a key driver of cost savings by mitigating material cost in FY2024/25. We expect this shift to yield dual benefits, cost optimization through lower material expenses and enhanced brand positioning in line with sustainable business practices.
• We expect management’s continued investments in innovation within the Ready-to-Drink (RTD) category to be instrumental in sustaining volume growth and improving market penetration. With Smirnoff Ice already a growth leader in the RTD space, strategic enhancements in product development and distribution efficiency will support revenue momentum in FY2024/25.
• While top-line growth is robust, we maintain a cautious outlook on near-term profitability due to cost pressures and FX risks. Effective cost control and FX risk management will be pivotal in stabilizing earnings and improving GGB Plc’s bottom-line resilience in the remainder of FY2024/25
• We expect management to intensify cost-control efforts in response to the sharp rise in input costs, aiming to mitigate the impact on profitability. Prioritizing these measures will be crucial to offset cost pressures on the bottom line and stabilize margins
• While Castel Group’s acquisition of Guinness Ghana Breweries Plc could enhance Guinness Ghana’s market penetration and cost structure in the medium term, we will monitor potential changes in pricing strategies, brand positioning, and dividend policies under Castel’s ownership
• Overall, GGB Plc’s strong revenue momentum, declining debt burden and earnings recovery position the company for sustained near-term growth. We anticipate that moderating inflationary pressures will help ease input cost pressures and operating expenses in the near term. Additionally, the Castel Group’s acquisition of Guinness Ghana Breweries Plc signals a strategic shift from Diageo’s premium-focused model to a mass-market, and cost-efficient approach, which we expect to further enhance cost containment and operational efficiency in the medium-term.

Valuation: Under Review 

• We are in the process of re-initiating coverage on GGB Plc and have therefore placed our recommendation under review
• GGB Plc is trading at a TTM PE of 18.7x, P/Sales of 1.1x and EV/SALES of 0.9x