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NESTLE NIGERIA PLC 9M'17 Earnings - Steady earnings momentum, committed to profit stability

Steady earnings momentum, committed to profit stability                                                              

Still strongly supported by higher pricing and modest volume recovery, NESTLE reported a 43% y/y growth in revenue for 9M’17 period, with top line (₦185 billion) largely in line with our estimate. With cost of sales and operating expenses marginally better than we expected (2% and 1% deviation respectively), 9M’17 operating profit rose 70% y/y (flattered by the cost-bitten base from prior year) and 7% ahead of our estimate at ₦43 billion.The major sour spot came from net finance expense (9M’17: ₦8.6 billion vs. Vetiva: ₦2.6 billion), bloated by persistent foreign exchange losses on dollar denominated loans amounting to ₦11 billion. Overall, 9M’17 profit after tax printed at ₦23 billion, a remarkable improvement from ₦485 million recorded in 9M’16 but 7% below our estimate. The Board of Directors has declared an interim dividend of ₦15.00 per share (FY’16: ₦10.00/share).                                                  

We revise our FY’17 revenue estimate 3% higher to ₦249 billion – implying a 37% y/y growth – and review our operating margin estimate to 23% (Previous: 22%) – supported by contained costs. Also, given the ytd run rate, we increase our net finance expense for FY’17 to ₦12 billion to reflect the higher than expected FX losses and lower interest income. Our FY’17 PAT estimate is thus revised lower to ₦31 billion (Previous: ₦33 billion) and our 12-month target price lower to ₦817.96 (Previous: ₦819.95).