Event: NESTLE published its Q1-22 unaudited results today, reporting EPS growth of 45.0% y/y to NGN22.68 (Q1-21: NGN15.64). EPS was supported by top-line expansion and net finance income.

Revenue grew by 26.3% y/y in Q1-22, following significant growth in NESTLE’s Food (+26.3% y/y | 60.0% of revenue) and Beverages (+26.3% y/y | 40.0% of revenue) segment, reflecting consumer’s resilient demand for NESTLE’s products. Notably, NESTLE’s exports in the quarter grew by 41.7% y/y to NGN2.03 billion (Q1-21: NGN1.43 billion) – the highest Q1 growth outturn since 2018. Nevertheless, domestic revenue still accounted for the bulk of its top-line, maintaining its c. 98.0% contribution to revenue. Sequentially, revenue grew by 22.2% q/q, underpinned by growth across the Food (+22.6% q/q) and Beverages (+21.5% q/q) lines.

Gross profit margin declined by 58bps y/y to 39.2% in Q1-22, as cost of sales (+27.5% y/y) grew faster than revenue. Just as we highlighted in prior quarters, the higher costs reflect the effects of elevated inflationary pressures on the cost of domestic prices, as NESTLE sources c.80% of its raw materials locally.

Notwithstanding, EBITDA (+42bps) and EBIT (+67bps) margins both increased to 26.0% and 24.0% respectively, following a 126bps y/y reduction in OPEX margin to 15.3%.

NESTLE recorded a net finance income of NGN1.45 billion in the quarter (vs net finance costs of NGN1.31 billion in Q1-21), owing to a whopping increase in its finance income (Q1-22: NGN3.82 billion | Q1-21: NGN123.34 million). The higher finance income outturn emanated from the higher net foreign exchange gain recorded in Q1-22 (NGN2.81 billion vs NGN31.01 million in Q1-21).

Overall, pre-tax profit grew 46.6% y/y to NGN27.85 billion in Q1-22. However, a higher effective tax of 35.4% in Q1-22 compared to 34.7% in Q1-21 led to slower growth in profit after tax to NGN17.98 billion (+45.0% y/y).

Comment: NESTLE’s Q1-22 performance was stellar in our view, reflecting our optimism that the company’s brand equity and product innovation will help it circumvent the stiff competition from unlisted cheaper brands. However, we highlight the margin pressure from higher input costs which is likely to persist through 2022FY. Market reaction to the result was positive as NESTLE’s stock closed higher by 3.2% in today’s trading. Our estimates are under review.