October 26, 2021/CSL Research

Nestle Nigeria Plc grew topline by 25.7% y/y to N90.15bn in Q3 2021 from N71.71bn in Q3 2020. 9M:2021 Revenue was up 23.0% y/y to N261.59bn from N212.73bn in September 2020. On a q/q basis, Revenue was up 7.1% to N90.2bn in Q3 2021 from N84.2bn in Q2 2021. We observed that the growth in Revenue was driven mainly by improved volume as prices remained relatively stable. The food sub-segment, which constituted c. 59.0% of the total top line, recorded the steepest growth in the period, up 25.1% to N154.34bn in 9M2021. Similarly, the beverages sub-segment which accounts for c. 41.0% of topline grew 20.0% y/y to N107.25bn. Export sales declined, down 18.5% to N3.27bn from N4.01bn in 9M2020.

Cost of Sales (adjusted for depreciation) outpaced the growth (23.0% y/y) in Revenue, up 31.3% rise to N156.56bn from N119.23bn. We observed that there was a 41.6% y/y rise in the cost line in Q3 2021 alone – a period that coincides with the rising international price for cocoa and shortages in the foreign exchange market. Though Nestle is one of the six businesses allowed by CBN to access FX through the official window, limited supply within the space had necessitated outsourcing of FX from the parallel market. In addition, local prices for items such as Maize which goes into its production process were also on the rise. Consequently, Gross Profit was rose moderately, up 12.3% y/y while Gross Margin shed 3.8ppts to 40.2% as of 9M 2021 from 44.0% as of 9M:2020.

Operating Expenses (adjusted for depreciation) was up 13.73% y/y to N42.68bn from N37.52bn in 9M2020. The rise in OPEX was driven by growth in both Marketing & Distribution (adjusted for depreciation) and Administrative Expenses (adjusted for depreciation), both of which were up by 15.9% y/y and 6.4% y/y respectively in the period. Growth in OPEX weighed on Earnings Before Interest Depreciation and Amortization (EBITDA) resulting in a moderate11.4% y/y growth to N62.36bn from N55.98bn in the corresponding period in 2020.

Operating profit grew 11.7% y/y to N57.99bn in 9M2021. Net Finance Expenses rose by 391.2% (despite the significant rise in Finance Income up 70.8% y/y to N1.19bn from N0.92bn in 9M2020. Nonetheless, PBT grew, up 4.8% y/y to N53.45bn in 9M:2021 from N50.99bn in 9M:2020. Further, Net Income grew by 5.3% y/y to N35.45bn in H1 2021 from N33.67bn in 9M:2020

We are currently reviewing the numbers. Current Price: N1,430/s. The firm had also announced N25/s interim dividend, implying

1.8% dividend yield based on yesterday’s closing price.