Nestle Nigeria Plc 9M’18 results – Sturdy performance supported by lower costs…Opeyemi Kolawole
Nestle Nigeria Plc (NESTLE) 9M’18 results – the firm grew its top line by 9.7% YoY to N203.1 billion in the period, in line with our estimate of N207.2 billion (-2.0% deviation). In the same vein, after-tax earnings advanced by 44.1% YoY to N33.1 billion, in line with our estimate of N33.5 billion.
Following its impressive 9M’18 earnings, the company proposed an interim dividend of N20.0/share (vs. N15.0/share in the prior year. This represents a dividend yield of 1.4% based on its last close price of N1,380.0.
• In Q3’18, NESTLE’s revenue grew by 7.1% YoY to N67.8 billion. According to provided breakdown, the food segment, which contributes c.65% to top line, advanced by 12.4% YoY to N43.9 billion. This offset the shortfall in the beverage segment, which declined by 1.3% YoY to N23.9 billion in Q3’18.
• In the same vein, we note that cost of sales grew at a slower pace (+4.1% YoY) than revenue (+7.1% YoY). We believe this was impacted by the moderation in the cost of some key raw materials, notably sugar, which declined by 22.2% YoY relative to the same period in the corresponding year. All in, gross margin expanded by 1.6 ppts YoY and 1.1% ppts QoQ to 45.1%.
• Down the line, we observed operational efficiency, as EBIT margin was relatively flat in the period at 25.4% (Q3’17: 25.9%, Q2’18: 26.0%). On finance costs, lower FX related losses (-99.2% YoY) accompanied with a 2.0% YoY moderation in finance cost, drove overall finance costs for the period to N1.5 billion (-79.4% YoY). Together with finance income amounting to N551.7 million in the period, the company posted net finance cost of N990.8 million (-84.4% YoY).
• Overall, increased sales growth, manufacturing cost savings and significantly lower net finance costs boosted bottom line growth, as after-tax earnings surged by 81.3% YoY to N11.7 billion in the quarter.
NESTLE’s ability to continuously drive top line growth despite weak consumer wallets is applaudable. For us, this speaks to consumer loyalty, as well as improved route-to-market strategies. In Q4’18, we expect increased volumes to continue to drive top-line growth, given the festivities during the period. On finance costs, we do not expect further material losses relating to FX, given the stability of the Naira – which should inherently lead to significant decline in finance costs, on a year-on-year basis. In sum, we expect the key drivers for earnings in the coming quarter to remain buoyant revenue growth and further cost savings. NESTLE currently trades at a P/E of 24.94x, a premium to Bloomberg MEA peer average of 19.64x. Based on our last review, our target price for the counter is N1,157.60 (SELL).