NESTLE NIGERIA PLC - FX losses undercut strong H1'16 sales
- NESTLE’s sales momentum strengthened further in Q2’16, up 23% q/q and 15% y/y. With this, H1’16 revenue came in 22% higher y/y (vs 5-year average growth of 12%), 6% above Vetiva’s estimate. Earnings however further deviated from our estimates following a 376% y/y spike in net finance charges which came in at
N14.9 billion (vs Vetiva’sN1.4 billion estimate). This outsized figure was recorded majorly due to foreign exchange losses of aboutN13.1 billion arising from NESTLE’s dollar loan exposure (following the 42% naira depreciation recorded in June), this drove short term borrowings 64% higher y/y. - Given the foregoing, NESTLE recorded a loss after tax of
N6.1 billion in Q2’16 (first quarterly loss ever recorded). However, due to the strong earnings performance in Q1’16, profit after tax for H1’16 came in atN536 million. With revenue slightly ahead of our estimate, we have chosen to maintain ourN162 billion FY’16 estimate as we remain guarded about consumer spending for the rest of 2016. However, after adjusting our cost estimates and the FX losses in the period, our EPS estimate has been revised lower toN10.22 (Previous:N36.03). However, we view these currency risks as short term hiccups in NESTLE’s mid-long term performance given that a bulk of these dollar denominated loans mature this year (c.60% of total interest bearing liabilities as at 2015) and noting the company’s drive to increase domestic sourcing by accelerating several backward integration plans. That said, our 12-month target price is relatively unchanged atN879.65 (Previous:N876.52).
Nestle Milkpak is engaged in the production, sale and export of dairy products, confectionery, culinary products and fruit juices. Co.'s products include Milkpak Milk, Milkpak Butter, Milkpak Uht Cream, Milkpak Desi Ghee, Nido powdered milk, Milo Powder chocolate energy food drink, Milo RTD, Nescafe Classic instant coffee, Frost fruit drinks, Nestle Orange Juice, Lactogen infant milk formula, Cerelac infant cereal, Nestle Rice infant cereal, Nestle Wheat infant cereal, Neslac growing up milk, Maggi 2-Minute Noodles, Nestle Sweet Treats dessert mixes, Polo mints and candies, Kitkat, Smarties, Fox's, Nestle Lion, Nestle Crunch, Nestle Classic milk chocolate and Nestle Pure Life bottled water.
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