Culled—Proshare
October 30, 2017/FBNQuest Research
Event: Nestle Nigeria reports Q3 2017 results
Implications: Neutral reaction expected by the market
Positives: Q3 sales and PBT up 29% y/y and 117% y/y to N63.3bn and N10.0bn respectively; PAT of N6.4bn compare with a loss after tax of –N51m a year ago
Negatives: Net fx loss of –N6.0bn offset strong underlying profits
This morning, Nestle Nigeria (Nestle) reported Q3 2017 results which showed that sales were up 29% y/y to N63.3bn while PBT grew significantly, by 117% y/y. PAT came in at N10.0bn compared with a loss after tax of –N51m in the corresponding period of 2016. Topline y/y growth continues to benefit from double-digit price increases which occurred in Q4 2016 mainly. We estimate prices across board were raised by around 35-40% on average over the last year.
During the quarter, Nestle introduced a new product, Milo ready-to-drink, into the market. For now this product is only starting to gain market acceptance and as such we do not anticipate any meaningful impact on Nestle’s topline this year. Similar to Q2, Q3 profitability was boosted by a gross margin expansion of 433bps y/y to 43.5% which we primarily attribute to relatively cheaper access to fx for imports. The big downside to this set of numbers was an fx loss of –N6.0bn in Q3 (-N11.2bn in 9M 2017) which compares with an fx-related loss of –N6.3bn in Q3 2016 (-N19.4bn in 9M 2016).
This fx loss was however not sufficient enough to offset gains coming through from topline growth and the gross margin expansion. Sales for both Nestle’s Food and Beverage categories were up by around 28% y/y to N39.1bn and N24.2bn respectively. Sequentially, while sales were up 4.2% q/q, PBT came in flattish, mainly on the back of the reported fx loss of –N6.0bn which compares with –N4.1bn in Q2. PAT declined -22% q/q due to a comparatively higher tax expense in Q3.
Compared with our forecasts, Q3 sales beat our N58.9bn estimate by 7.6%. However, PBT came in -16% behind our estimate, mainly driven by a negative surprise on the net finance charges line. Nestle proposed an interim dividend of N15/share (compared with our N10 est.); this implies a dividend yield of 1%. On an annualised basis, Nestle’s 9M 2017 PBT is tracking behind consensus PBT estimate of N48.0bn. As such, we expect downward adjustments to consensus estimates on the back of these numbers.
Looking ahead, we expect Nestle, like its peers, to continue to contend with the macroeconomic headwinds in 2018. In our view, sector leaders like Nestle are likely to fare better compared with competition. Given recent fx interventions by the central bank we believe imported competition will ultimately start to stage a comeback. Nestle shares have gained +52% ytd, outperforming the ASI by 16%.
We rate the stock Neutral. Our estimates are under review.
