May 11, 2026/Cordros Report
We update our outlook on Nestle Nigeria Plc (NESTLE) for 2026E following the release of its Q1-26 unaudited results. Earnings performance was driven by revenue growth (+10.6% y/y) and a sharp decline in net finance costs (-92.8% y/y) amid. The sharp decline in net finance costs was underpinned by FX gains (NGN14.76 billion) on FCY-denominated balances. Incorporating Q1-26 performance into our estimates, we model a year-end target price of NGN3,199.47, implying a +2.4% upside to the current price of NGN3,125.00/share, and retain a “HOLD” recommendation on the stock. Our valuation reflects improving earnings visibility, margin expansion, and the anticipated resumption of dividends, albeit against a backdrop of sustained marketing intensity (13.4%) and elevated near-term CAPEX requirements. On our estimates, NESTLE currently trades at a 2026E P/E and EV/EBITDA of 12.1x and 7.8x vs. MEA peer median of 18.6x and 9.6x, respectively.
Modest growth, margin expansion drives earnings recovery: We project revenue growth of +9.3% y/y in 2026E (2026E-2030E CAGR: 10.1%), driven by modest volume expansion across Food (+8.6% y/y) and Beverages (+10.4% y/y). Growth in the Beverages segment is expected to be driven by a continued shift toward single-serve formats, aimed at enhancing affordability amid constrained consumer demand. This format shift should sustain high marketing intensity at 13.4% of revenue (2025: 13.4%), complemented by selective price moderation to support volumes and protect market share. Profitability margins are expected to expand, with gross and EBITDA margins projected to rise by 444bps y/y and 485bps y/y to 40.5% and 26.7% respectively, supported by localisation gains (c.65.0% local sourcing) and a more stable FX environment. Additionally, we project an 85.0% y/y decline in finance costs. Overall, NESTLE is projected to deliver EPS growth of +93.0% y/y to NGN256.15 (2025: NGN132.42).
Earnings recovery enables full dividend resumption: Management reiterated its priority to exit negative retained earnings in 2026E, supported by a gross margin target of 38.0% – 40.0% despite expectations of single-digit revenue growth. We project retained earnings to recover to NGN48.99 billion (from a retained loss of NGN112.78 billion in 2025A), enabling the resumption of dividend payments. Hence, we forecast an interim dividend of NGN52.06/share and a final dividend of NGN76.01/share in 2026E, implying a total dividend of NGN128.07/share (50.0% payout ratio; 4.1% yield at current price). Beyond 2026E, strong free cash flow generation (2026E–2030E FCF CAGR: +14.1%) should support a more sustainable dividend profile, with average payout and yield projected at 77.0% and 9.2%, respectively, alongside continued balance sheet de-risking (2026E: NGN62.39 billion | 2025A: NGN61.82 billion).
Valuation: Our target price is NGN3,199.47/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 (NGN2,227.36/s) and FCFE (NGN1,920.76/s), assuming a 20.6% WACC and a 4.0% terminal growth rate. Similarly, our multiple based FV was derived from a blend of EV/EBITDA (NGN3,896.43/s) and P/E (NGN4,753.32/s) multiples, utilising Bloomberg’s Middle East and African peer median for both factors (9.6x and 18.6x, respectively) as multipliers.
