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NESTLE NIGERIA PLC 9M'22 Earnings Release - Earnings remain sturdy amid tougher cost scene

Driven by 30% and 24% y/y increases in its Food and Beverage segments respectively, Nestle Nigeria PLC’s 9M earnings showed a 27% rise in Revenue to ₦333.5 billion (Vetiva: ₦331.4 billion), with bottom line printing at ₦40.2 billion (+20% y/y).  The company has declared an interim dividend of ₦25.00 per share (9M’21: ₦25.50), which translates to a dividend yield of 2% at current market valuation.

However, despite the sturdy pricing maintained, gross margin declined by 4ppts y/y, worsened by the 34% y/y rise in cost of sales from higher commodity pricing. Furthermore, with Opex increasing 22% y/y, Nestle’s operating margin reduced by 2ppts to 19%.

Outlook remains promising In the last quarter of the year, with the company’s positioning using smaller Store-Keeping Units (SKUs) to promote affordability, we expect the surge in demand that is typical of Q4, as well as the expected spending from the election season, to support sales volume. Furthermore, the impact of higher y/y pricing should reinforce the growth in volumes and support a full year Revenue estimate of ₦435.6 billion (+24% y/y). Nestle’s gross margins, although lower y/y, have remained strong relative to peers and should hold at 37% for the full year, given declining commodity prices globally.