Six months after posting its first annual profit since 2013, Guinness Ghana fell back into the red in the first half of its 2018 fiscal year.
Soaring utility prices, heavy investment in marketing, and a weakening cedi slashed the brewer’s operating profit by 72%. And interest charges more than wiped out the remainder, resulting in a GHS4.6 million loss for the period.
But a closer inspection of the numbers reveals some encouraging trends.
Untapping Free Cash Flow
First, the company raked in GHS11.7 million worth of free cash flow. This is a big reversal from the first half of 2017, which ended with negative free cash flow of nearly GHS30 million.
The happy consequence of this cash influx is a substantially more liquid balance sheet. Guinness Ghana’s bank balance has nearly tripled over the past twelve months, improving the company’s current ratio from 1.2 to 1.4.
This gives management plenty of resources to respond to unforeseen challenges and opportunities, while reducing the likelihood that the company will be forced to issue additional shares, as it was in early 2016.
What’s more, the company continued to chip away at its debt-load, cutting its long-term debt to equity ratio to 0.41 from 0.43.
On the operations front, the company hiked its prices in August and launched new product and packaging lines (Orijin Zero, Malta Guinness PET bottles) that have proven to be hits with Ghanaian consumers.
All of this bodes well for improved profitability and perhaps even the resumption of an annual dividend payment in coming years. The company hasn’t paid a dividend in over four years.
Time to Buy?
So, is it time for investors to guzzle Guinness Ghana shares?
Having jumped 55% over the past six months, the stock presently sports a price-to-earnings ratio of 88.6. That looks pretty foamy.
But compare the current share price of GHS2.22 to the company’s free cash flow (FCF) over the past twelve months and a much more robust value proposition emerges. The stock presently trades at an enticing P/FCF ratio of just 11.6.
If the company ends up reporting earnings growth over the next six months, as I suspect it will, we can expect more investors to get clued into this turnaround story.
Thus, with Ghana’s macroeconomic situation continuing to improve, I believe Guinness Ghana shares are worthy of a speculative bet.
What do you think? Let’s hear your thoughts in the comments.
Disclosure: At time of publication, I held no shares of any company mentioned above.
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