FREE

NESTLE NIGERIA PLC Q1'17 - Revenue outperformance drives earnings beat

Reporting the strongest quarterly revenue figure on record, NESTLE’s Q1’17 results came in better than expected across most line items. NESTLE reported an impressive 69% y/y revenue growth to ₦61 billion, beating Vetiva estimate of ₦45 billion. Whilst we note that this growth was supported by the lower pricing base in Q1’16, NESTLE’s parent company stated that the robust performance was also following double-digit volume growth. Gross margin in Q1’17 came in much lower than the previous year (38% vs 49% in Q1’16). In line with the industry trend however, earnings were bolstered by gains from continued cost cutting strategies which saw OPEX (as a % of sales) fall from 24% in Q1’16 to 17% in Q1’17. With this, EBIT rose 46% y/y to ₦13 billion, outpacing Vetiva’s ₦9 billion estimate.

Given the aforementioned, Q1’17 PBT came in 64% higher y/y at ₦14.3 billion, 66% of total FY’16 PBT. Overall, following a higher than expected tax expense, profit after tax rose 25% y/y to ₦8.4 billion, 48% ahead of Vetiva estimate. Following the outperformance in this quarter, we revise our FY’17 revenue estimate higher to ₦218 billion (Previous: ₦197 billion). Also, given the sustained improvement in operating expenses and surprise from interest income, our FY’17 EPS estimate is revised higher to ₦41.62 (Previous: ₦30.88). Consequently, our 12-month target price is revised upwards to ₦810.76 (Previous: ₦796.53).