November 5, 2025/Cordros Report
In this report, we provide an update on our views on Nestle Nigeria Plc’s (NESTLE) for the rest of the year, following the release of their 9M-25 numbers. Given that direct overheads, and brand support spending in Q3-25 have trended above our initial expectations, we have adjusted our model to align with the current run rate, resulting in a downward revision to our 2025FY gross (-200bps) and EBITDA (-248bps) margin projections.
However, a stronger-than-expected FX gain of NGN34.83 billion (Previous: NGN3.76 billion) is projected to cushion earnings pressure, enhancing earnings visibility for the period. Overall, NESTLE’s earnings recovery narrative remains intact, supported by firm pricing discipline, gradual volume recovery, and sustained FX tailwinds. Accordingly, we raise our year-end target price by 2.0% to NGN1,946.31/s (Previous: NGN1,906.64/s), implying a 12.5% upside from the current price of NGN1,730.00/s and supporting an indicative HOLD rating. On our estimates, NESTLE currently trades at 2025E PE and EV/EBITDA of 10.5x and 6.3x – compared to MEA peer average of 12.8x and 7.9x, respectively.
Stronger FX gains offset margin pressure: We retain our 2025E revenue growth forecast at +27.4% y/y (2025E – 2029E average: 28.2%), with expectations across the Food (+31.7% y/y) and Beverages (+19.6% y/y) segments remaining intact. Given the faster-than-expected rise in cost of sales (+17.0% y/y; Previous: +13.3% y/y) and operating expenses (+42.8% y/y; Previous: +38.8% y/y), we revise downwards our 2025E gross and EBITDA margins to 37.5% (Previous: 39.5%) and 24.4% (Previous: 26.9%), respectively. Over the medium term (2026E–2029E), margins are projected to recover and stay above historical averages, with gross and EBITDA margins projected at 44.1% and 30.0% (vs 37.1% and 23.0% in 2020 – 2024A). Stronger operating cash flows and sustained FX tailwinds are expected to lift FX gains to NGN34.83 billion (previous: NGN3.76 billion), enhancing earnings quality and underpinning a modest upward revision in our 2025E EPS forecast to NGN164.01 (Previous: NGN160.75).
Valuation remains attractive amid improving fundamentals: In our view, NESTLE’s valuation remains appealing, with the stock trading at 2025E P/E and EV/EBITDA of 10.5x and 6.3x—discounts of c.18.0% and c.20.0%, respectively, to MEA peer averages (12.8x and 7.9x). We believe this gap reflects residual caution rather than weak fundamentals, given firmer FX translation gains, gradually improving margins, and resilient cash generation. These factors, alongside the company’s strong brand equity and pricing power, support our modest 2.0% upward revision in target price and sustain a measured upside bias.
Valuation: Our target price is NGN1,946.31/s, derived from an equal blend of DCF and sector relative valuation approach (P/E & EV/EBITDA). Our DCF FV is derived from an equal blend of FCFF (NGN2,001.20/s) and FCFE (NGN1,401.32/s), assuming a 24.5% WACC (previous: 26.4%) and a 4.0% terminal growth rate. Similarly, our multiple-based FV was derived from a blend of EV/EBITDA (NGN2,288.91/s) and P/E (NGN2,093.82/s) multiples, utilising Bloomberg’s Middle East and African peer median for both factors (7.9x and 12.8x) as multipliers.
