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CAL Brokers initiates coverage of GGBL with a BUY recommendation

We initiate coverage of Guinness Ghana Brewery Limited (GSE:GGBL) With a BUY recommendation based on a price target of GHS2.70 per share, with reference from the current market price of GHS2.20, translating into capital appreciation of 22.73%. This value was derived from the discounted free cash-flow and peer comparison approach. We expect GGBL's profitability to increase in the medium to long-term period compared to its current performance.

GGBL's expansion of product lines is expected to play a significant role in its near future performance. The addition of the Odeye Beer and several spirit brands are expected to help GGBL to compete in specific niches of the beverage market previously reserved for indigenous breweries. We expect the market share of GGBL to increase on the back of strategic launching of products to fill the consumer gap within the middle and lower upper tier markets. In addition, GGBL's balance sheet refinancing with low interest loans from Diageo provides it with a low cost of funding. The company's restructured balance sheet provides it with significant reduction in interest expense which translates into a marked improvement in recorded bottom-line.

GGBL's key risk to sustained profitability is the increased industry competition from local breweries and cheap beverage imports. The fragmented nature of the beverage industry, which includes several local and multinational players, limits GGBL's pricing power and profitability margins moving forward. However, we believe that the strong brand presence of GGBL will help sustain the company's profitability.

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