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NESTLE NIGERIA PLC - H1'17 earnings berth in line with estimates

NESTLE NIGERIA PLC                                                                    

H1'17 earnings berth in line with estimates                                                                 

Maintaining the run rate from Q1’17, NESTLE reported another strong topline growth in Q2’17 with cumulative revenue for the H1’17 period up 37% y/y to ₦121.9 billion (Vetiva: ₦121.4 billion). Whilst the lower pricing base from H1’16 was a major driver of this robust performance, Nestlé’s parent company had also stated that volume growth in its Nigerian subsidiary was likewise strong. Supported by an improving FX environment and price increases taken to mitigate cost pressures, gross margin continued to firm up in the second quarter (Q2’17: 41% vs. Q1’17: 38%), with H1’17 gross margin coming in just in line with our estimate at 40%, albeit slightly below the 41% recorded in H1’16. However, amidst sustained operating cost containment, H1’17 operating profit margin rose 329bps y/y to 21.9%. Supported by the ₦5.1 billion interest income on bank deposits, net finance cost moderated significantly y/y to ₦2.2 billion (H1’16: ₦14 billion).                                        

Given the foregoing, NESTLE recorded a strong bottom line rebound from the low base in H1’16: ₦536 million, with PAT up to ₦16.5 billion (Vetiva: ₦16.8 billion). With revenue largely in line with our estimate, we have retained our FY’17 estimate at ₦241 billion – implying a 33% y/y growth. We reduce our OPEX to sales ratio from 19.6% to 18.4% on an improved cost outlook. As such, FY’17 EPS estimate is reviewed slightly higher to ₦42.15 (Previous: ₦41.62) and our 12-month target price to ₦819.95 (Previous: ₦818.65).                  

Nestle Nigeria PLC, a subsidiary of Nestle S.A., is one of Nigeria’s largest food and beverage companies. Nestle has been in operation in Nigeria since 1961 in the Food and Beverage Segments. The company produces and markets global brands including market leader Maggi seasoning cube, Milo and Nestle Pure Life Water.