Focus for the week: Tolaram to acquire Diageo’s shareholding in Guinness Nigeria Plc

Provisions of the sale agreement

• Diageo is selling its shareholding in Guinness Nigeria Plc, as it looks to reduce its presence in the Nigerian market and focus on its premium spirits business. It will be selling its stake to Tolaram, the specialist manufacturing, marketing and distribution conglomerate.

• Tolaram will acquire Diageo’s 58.02% shareholding in Guinness Nigeria PLC for a share price of ₦81.60 per share, a 63% premium to the 30-day VWAP.

• Diageo says it remains deeply committed to Nigeria. Diageo will retain ownership of the Guinness brand, and it will be licensed to Guinness Nigeria for the long-term, enabling its continued growth and development in the country under the stewardship of Tolaram. Diageo will still be involved in the long-term brand strategy planning for Guinness Nigeria Plc.

• Diageo will also remain in the country through its wholly owned international premium spirits business built to serve a wider geographic reach across West Africa, with Nigeria as one of the main operational hubs.

• Completion of the transaction is expected to be in FY’25 subject to the satisfaction of certain conditions, including various regulatory approvals

Our views

We see this transaction yielding growth for GUINNESS, as Diageo focuses on its strength in branding, while Tolaram leverages its localised manufacturing and distribution network to bolster Guinness’s competitiveness in the value segment of the breweries space. Tolaram has been involved in strategic plays with global brands in manufacturing and distribution of mass market products in Nigeria. This means we will expect an increased push in locally manufactured drinks by Guinness Nigeria Plc. 

What shaped the past week?

Equities: This week, double digits gain in TOTAL (+20.96% w/w) and REGALINS (+23.68% w/w) boosted the Oil & Gas (+5.28% w/w) and Insurance (+3.42% w/w) sectors to solid green closes. Meanwhile, broad based gains across banking counters led the sector to a green close as well, up 3.63% w/w. The Consumer Goods sector (+1.05% w/w) also closed in the green, driven by gains in FLOURMILL (+13.16% w/w), despite the loss recorded in NASCON (-9.91% w/w). All in, the bourse inched higher 0.86% w/w, as market breadth stayed positive during the week.

Fixed Income: This week, the DMO through the CBN held an NTBs auction. At the auction, the DMO offered c.₦44 billion across maturities on the curve, as against c.₦220 billion offered in the previous auction, while subscription levels declined to c.₦410 billion from ₦714 billion. At the end of the auction, the DMO allotted c.₦55 billion. Following this, stop rates on the 364-day bills contracted by 17bps to 20.50%, while stop rates on the 182-day bill fell by 6bps to 17.44%, and stop rate on the 91-day bill declined by 20bps closing at 16.30%. In the secondary market, mixed trading activities were sustained throughout the week, as the money market traded with a mild bullish bias, while the short-end of the Bonds curve saw bearish activity, amid muted performances across the rest of the curve.

Currency: At the NAFEM, the Naira appreciated by ₦1.27 w/w to close at ₦1482.72 per dollar.

Domestic Economy:

The World Bank approved a total loan worth $2.25 billion to Nigeria, subdivided into $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) and $750 million for the Nigeria Accelerating Resource Mobilization Reforms (ARMOR) Program-for-Results (PforR). This combined $2.25 billion package provides immediate financial and technical support to Nigeria’s urgent efforts to stabilize the economy and scale up support to the poor and most economically at risk. We expect this package, alongside an earlier $900 million receipt from the Africa Export-Import Bank, to bolster the external reserve stock and stem the slide in the Naira. We remain bullish on the Naira over the short term because of this multilateral support.

Global:  U.S. stock indexes fell on Friday morning, ending a streak of record highs for the Nasdaq and S&P 500, as investors took profits, given that the Fed sees only one rate cut happening in 2024. Meanwhile, French assets remained under pressure, as the market prepares for snap elections at the end of the month. Finally, in a decision seen as a step toward monetary tightening, the Bank of Japan said it would reduce the amount of monthly government bond purchases, as it left its policy interest rate unchanged. What will shape markets in the coming week?

Equity market:   We expect the market to resume next week on a mixed note albeit with a bearish tilt, as investors look to lock in gains recorded this week in key names across the market.

Fixed Income:  Following the one-week postponement of the Bonds auction, we expect market to trade on a similar note when activities resume after the holidays.