Nestle Nigeria | Water no get enemy
While performance from Foods disappointed, Nestlé Nigeria's Q3 '19 results highlight the continued tenacity of its Beverages segment (+7% revenue growth y/y). Despite Nestlé locally sourcing between 80% to 90% of its inputs, we believe the border closures surrounding Nigeria negatively impacted the producer's GP margins which declined from 47% in Q2 '19 to 44% in Q3 '19. We view the current economic pressure that lower LSM Nigerians are experiencing as a leading cause of the slower growth in Foods, while Beverages consumers remain strong (given higher LSM). Given sluggish growth in the Foods segment, we expect a c.6% decline in operating profit for Q4 '19 and for Beverages to support our forecast of 12% y/y growth for FY ‘19. Despite the expected miss to our original FY '19 earnings forecast, we expect the Company to maintain ROIC in excess of 40% and remain free cash flow positive in a challenging environment.
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