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NESTLE NIGERIA PLC FY'17 - Mixed performance in Q4, but outlook still intact

Mixed performance in Q4, but outlook still intact                                                                                           

Nestle Nigeria released its FY’17 financial results showing a 34% y/y growth in revenue to ₦244 billion, lagging Vetiva’s estimate of ₦249 billion. The deviation from our expectation was driven by a surprising underperformance in Q4’17 where the top line came in 7% lower q/q vs. a 5-year Q4 average growth rate of 10% q/q. Historically the strongest quarter in the year, Q4 recorded the weakest contribution to revenue in 2017 at 24% vs 5-year average of 28%. Operating profit margin also deteriorated in the quarter, coming in 450bps lower q/q at 21% (Vetiva: 24%) with most pressure coming from selling and distribution expenses. Earnings for the full year printed 9% above our estimate at ₦34 billion and much higher than the dismal ₦8 billion recorded in FY’16. Revenue grew 34% y/y for the period, driven by a mix of stronger pricing as well as mild recovery in volume rollout.                                                                                   

We forecast ₦41 billion profit after tax for FY’18 – implying 22% y/y growth. Our 12-Month Target Price is revised higher to ₦1,140.79 (Previous: ₦925.63) and we maintain our SELL rating. We note that the stock trades at a premium to peers, both on a current (NESTLE P/E: 33.25x, Bloomberg EMEA Peers: 20.23x) and forward (NESTLE P/E: 27.34x, Bloomberg EMEA Peers: 16.59x) basis.                                                                                  

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.