August 13, 2026/Cordros Report
In this report, we revise our 2026E estimates for Nestle Nigeria Plc (NESTLE) following the release of its H1-26 results. During the period, revenue grew by 12.0% y/y, EBITDA margin expanded by 65bps y/y to 24.9% and EPS increased by 28.1% y/y to NGN81.72. Following our review, we raise our 2026E revenue growth forecast to 9.5% y/y (Prev.: +9.3% y/y), reflecting stronger volume outlook in the Beverages segment. However, we lower our 2026E EBITDA margin estimate to 25.0% (Prev.: 26.7%), reflecting higher OPEX growth assumption (+14.9% y/y | Prev.: +8.0% y/y) on increased marketing and distribution expenses. At the same time, we lower our EPS forecast to NGN198.15 (Prev.: NGN256.15), further impacted by a higher effective tax rate projection of 40.0% (Prev.: 30.0%). On this basis, we revise our year-end TP downward to NGN2,711.06/s (Prev.: NGN3,199.47/s), implying a 3.2% downside from the current price of NGN2,800.00/s, and maintain a “HOLD” rating on the stock. We also forecast a 2026E DPS of NGN49.54, translating to a dividend yield of 1.8%. On our 2026E estimates, NESTLE trades at 14.1x P/E and 7.8x EV/EBITDA, vs. MEA peer averages of 14.1x and 8.3x, respectively.
Higher operating costs temper earnings outlook: We revise our 2026E revenue growth forecast upwards to 9.5% y/y (Prev.: +9.3% y/y), driven by a stronger volume outlook in the Beverages segment (+16.0% y/y | Prev.: +10.4% y/y), where smaller sachet formats continue to support affordability. On costs, we now forecast COGS growth of 2.8% y/y (Prev.: +1.7% y/y), a modest upward revision reflecting slight energy-related pressures on input costs. Consequently, we lower our gross margin forecast to 40.0% (Prev.: 40.5%). Meanwhile, we raise our OPEX growth forecast to 14.9% y/y (Prev.: +8.0% y/y), largely reflecting sustained marketing and distribution spending (+15.7% y/y). Accordingly, we now forecast EBITDA margin to expand by 308bps y/y to 25.0% (Prev.: +485bps y/y to 26.7%). Furthermore, we now project a 57.0% y/y decline in net finance costs to NGN25.18 billion (Prev.: -70.0% y/y), and an EPS growth of 49.6% y/y to NGN198.15 (Prev.: +93.4% y/y to NGN256.15).
Leverage metrics improves, albeit more gradually: NESTLE’s leverage position is still expected to improve in 2026E, albeit at a slower pace than previously anticipated. Specifically, net debt to EBITDA is forecast to ease to 1.08x (Prev.: 0.90x | 2025FY: 1.67x), while interest coverage strengthens to 3.13x (Prev.: 6.13x | 2025FY: 2.23x). The revision to our leverage estimates reflects a slower pace of principal repayment, as we now expect additional naira borrowing to partly offset scheduled repayments, while the refinancing of legacy FCY obligations into naira leaves a higher cost of debt than we had assumed. We expect further improvement in 2027E, with net debt to EBITDA easing to 0.8x and interest coverage strengthening to 3.7x, leaving earnings materially less sensitive to financing costs.
Valuation: Our target price is NGN2,711.06/s, derived from an equal blend of DCF and sector relative valuation estimates (P/E & EV/EBITDA). Our DCF fair value is derived from an equal blend of FCFF (NGN3,094.66/s) and FCFE (NGN1,944.40/s), assuming a 15.0% WACC, 25.3% cost of equity and a 4.0% terminal growth rate. Similarly, our multiple based fair value was derived from a blend of EV/EBITDA (NGN3,007.16/s) and P/E (NGN2,798.02/s) estimates, utilising Bloomberg’s Middle East and African peer averages for both factors (8.3x and 14.1x, respectively) as multipliers.