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, worse...
We resume coverage of Nestlé Nigeria Plc – Nigeria’s leading fast-moving consumer goods (FMCG) company – with a target price of NGN1,404 (previously NGN1,460) and a Hold recommendation. Nestlé’s broad product portfolio across the food and beverage segments continues to underpin the company’s appeal to investors, which supports the NGN1tn market cap. This makes it the most valuable FMCG company and the fifth-largest company on the Nigeria stock exchange. In addition, Nestle’s policy of returni...
A feeling of deja vu If Nestle’s topline performance in Q420 had you feeling like you had seen this story before, it’s probably because you have! Revenue grew on a YoY basis for the second consecutive quarter, this time by 2.3% to N74.35 billion. But, just like Q320, costs grew faster than revenue at a rate of 10.6%YoY which led gross profit down by 8.3%YoY to N29.19 billion. Also similar to Q320 was a fall in OPEX (-9.8%YoY) which was not enough to stop EBIT from declining (-6.7%YoY to N14.2...
Nestle Nigeria recently released its half year results, reporting a flat topline performance in Q2’20 versus Q2’19, albeit 0.6% higher than our estimate. Revenue came in at ₦70.3 billion in the quarter, taking H1’20 Revenue to ₦141.0 billion, also flat compared to the previous year. While food revenue continued to underperform this year (-2.5% y/y to ₦86.0 billion in H1’20), the revenue growth in beverages (+2.5% y/y to ₦55.0 billion) acted as a buffer, likely boosted by Ramadan demand i...
The sleepy IPO market just received an espresso shot. Amidst the doom and gloom, JDE Peet's raised US$2.5bn last week, in Europe's biggest IPO since 2018. It was also the first major listing that was conducted entirely in the brave new world of Zoom calls. The deal is extraordinary in that Covid-19 did not dent its prospects. On the contrary, the issuers actually rushed the deal forward to benefit from the post-March stock market rally. The IPO process was reduced from four weeks to 10 days d...
When the history of Covid-19 is written, it may be recorded as the Zoom era. The videoconference provider has spread as rapidly as the virus. It’s users have risen 30 fold from just 10 million in December 2019 to almost 300 million in April 2020. Like Google and Xerox, Zoom is a now used as verb. [-eu-west-1.amazonaws.com/exotix-content-uploads/jlKmZltrPwcxUPXecrBTnY2SQyGGyhy1WJBMI30I.png] Investors are clamouring for exposure to Zoom and its videoconferencing peers, such as Cisco W...
Covid-19 has devastated the lives of Africa's poor. In many countries, the lockdowns have halted the income of day labourers, andcurbed their spending. Working primarily in construction, transport and hospitality, they are an engine of consumption, and as some countries begin to ease lockdowns, the pivotal role that the African poor pays in consumption growth will again be apparent. HOW CAN AFRICAN COMPANIES BETTER TARGET THE POOR? Companies can successfully target the poor by selling product...
President Muhammadu Buhari declared a shutdown of business, economic and social activities in Lagos, the Federal Capital Territory (FCT) and Ogun during his national broadcast on Sunday. The restriction aimed at curbing the spread of the coronavirus in these states, which account for 83% of all 111 confirmed cases in the country (according to the NCDC), is expected to last 14 days and will take effect from today at 11 pm. Essential services like hospitals (including clinics and pharmacies), a...
While performance from Foods disappointed, Nestlé Nigeria's Q3 '19 results highlight the continued tenacity of its Beverages segment (+7% revenue growth y/y). Despite Nestlé locally sourcing between 80% to 90% of its inputs, we believe the border closures surrounding Nigeria negatively impacted the producer's GP margins which declined from 47% in Q2 '19 to 44% in Q3 '19. We view the current economic pressure that lower LSM Nigerians are experiencing as a leading cause of the slower growth in...
Sector valuation is now closer to fair value. Our coverage of Nigerian consumers stocks is down 21% ytd on aggregate, and currently trades at a median FY 20f PE and EV/EBITDA of 22.8x and 10.3x, respectively (average 30% discount to the 2-year historical median). In our view, the sector historically traded at unjustifiably rich multiples, and is now closer to our fair value estimates (FY 19f PE and EV/EBITDA of 23.9x and 7.9x), hence our broadly neutral stance, despite cuts to our target prices....
Nestlé and Unilever's H1 ‘19 results illustrate that consumers are under pressure. Despite the challenges, producers increased profitability and exceeded our margin expectations due to Q2 ‘19's revenue growth together with positive operating leverage. Using Nestlé for more readthrough, it appears positive momentum in beverages is supporting the growth. Results in Q2 '19 suggest improvements to come in H2 '19. However, we highlight challenges for home and personal care (“HPCâ€) produ...
Nigeria H2'19 Outlook - Feeble feet on thorny grounds Narrow opportunity window amid easing global monetary conditions: A sense of urgency is required for Nigeria to derive optimal benefits from the sudden increase in global liquidity conditions occasioned by the switch to accommodative monetary policy by central banks in developed markets. IMF projections indicate, that global GDP growth could ease to 3.3% for FY’19 due to weaker growth in the...
Nestlé has distinguished itself compared to Unilever by investing in Nigeria, leading to outsized returns. In our view, developing markets, creating scale and investing in local capacity will determine future returns for the FMCG players. Even though the Nigerian consumer has been under pressure for the last five years (HCE: 2.9% CAGR), Nestlé has invested c.USD176m of capex and grown earnings by 14% CAGR while delivering an average ROIC (42%) which is more than double its closest peer, Unil...
Q1 19 EPS was up 49% yoy to NGN16.12, trending ahead of our estimates for FY 19 earnings, which we expect to be up 21% yoy. Top line growth remained strong, expanding by 5% yoy and 12% qoq, due to sustained improvements in both the food and beverage segments. Likewise, net income grew 49% yoy and 30% qoq. Other positives include a decline in input costs, as well as a sharp drop in finance charges.
We are bullish on the Africa Consumer sector and identify Nigerian Breweries (NB NL), Nestle Nigeria (NESTLE NL), and East African Breweries (EABL KN) as our top picks. In this report we introduce a proprietary valuation metric, Productive Exposure to the Poor (PEP), that rates companies based on the extent to which their business model targets Africa’s poorer segments. We also focus on Nigeria and provide individual company analysis of the eight Nigerian Consumer names in our coverage.
Mixed bag of performances for FMCGs In line with the year-long trend observed in the sector, we expect revenue growth for consumer goods companies in Q4’18 to remain majorly driven by volume performance. Specifically, we forecast stronger topline figures in the seasonally stronger fourth quarter amid higher consumption levels in the festive period, and also mildly buoyed by stronger commercial activity during the electioneering se...
Nestle’s 9M 18 result was decent and broadly in line with our expectation. The only surprise was on the interest expense which came in higher than expectation and already tracking higher than our FY 18 estimate. Accordingly, we revise our FY 18E earnings forecast lower by 5% to N56.82 after adjusting interest expense higher for the rest of the year. Farther out, we raise our EPS expectation over our forecast horizon (FY 19-23F) by 2.6% on average following moderation to our cost of sales ratio...
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