August 14, 2025/Cordros Report
We update our view and estimates for Nestle Nigeria Plc (NESTLE) after a solid H1-25 showing. While heightened price sensitivity and downtrading pressured volumes, effective price increases between H1-24 and Q1-25 preserved margins, offsetting the 2.9% q/q revenue decline in Q2-25. For the rest of 2025E, we expect cost pressures to ease on a more favourable macro backdrop — driven by disinflation and currency stability — delivering FX gains and thus supporting earnings growth. In light of stronger-than-expected operating cash generation for 2025E, which enhances deleveraging potential and strengthens the 2026E dividend outlook, we raise our year-end target price to NGN1,906.64/s (previous: NGN1,319.08/s). On our estimates, NESTLE currently trades at 2025E PE and EV/EBITDA of 11.8x and 6.1x – compared to MEA peer average of 11.2x and 7.9x, respectively.
2025E earnings rebound on food-led growth, FX gains: We revise our 2025E revenue growth forecast to 27.4% y/y (previous: 28.5% y/y), reflecting softer growth expectations in Beverages (+19.6% y/y | previous: +28.1% y/y) on heightened price sensitivity and downtrading — while Food (+31.7% y/y | previous: +28.7% y/y) is expected to sustain its role as the primary growth driver on stronger volumes. We now project 2025E gross margin at 39.5% (previous: 37.0% | 2024FY: 32.0%) on a supportive macroeconomic backdrop. However, a 36.6% y/y rise in marketing and distribution expenses — driven primarily by higher consumer promotion, freight, and storage costs — alongside a 46.2% y/y increase in administrative expenses, largely from higher share service costs, is expected to lift the 2025E OPEX margin to 15.8% (2024FY: 14.5%). This, in turn, tempers our EBITDA margin forecast to 26.9% (previous: 27.1%; 2024FY: 20.5%). Supported by FX stability and stronger operating cash flow, we forecast NGN3.76 billion in FX gains, driving 2025E EPS to NGN160.75 (previous: NGN163.20 | 2024FY: loss per share of NGN207.65).
Strong cash generation marks turning point in FCF yield: We estimate FCF yield to turn positive in 2025E, printing at 8.0% (2024FY: -5.8%), underpinned by a projected surge in operating cash flow to NGN169.79 billion (2024FY: NGN5.86 billion), driven by effective pricing strategy. The improved liquidity profile is expected to lower dependence on external funding and support faster deleveraging, with net debt/EBITDA projected to decline to 1.6x in 2025E (2024FY: 3.2x). Notably, as of Q2-25, NESTLE had already prepaid USD20.00 million in intercompany FX liabilities. Consequently, we now forecast 2025E net debt/EBITDA to improve materially to 1.6x (2024FY: 3.2x). Additionally, we project a return to dividend payment by 2026E.
Valuation: Our target price is NGN1,906.64/s, derived from an equal blend of a DCF and sector relative valuation approach (EV/EBITDA). Our DCF FV is derived from an equal blend of FCFF (NGN1,872.53/s) and FCFE (NGN1,370.98/s), assuming a 26.6% WACC and a 4.0% terminal growth rate. Similarly, our multiple-based FV was derived from a blend of EV/EBITDA (NGN2,588.38/s) and P/E (NGN1,794.67/s) multiples, utilizing Bloomberg’s Middle East and African peer median for both factors (7.9x and 11.2x) as multipliers.
