Nestle Nigeria Plc Resilient Amid Challenging Operating Environment

Must Read

TAJBank Launches Nigeria’s 2nd Non-Interest Financial Institution (Photos)

Abuja Nigeria   December 2nd 2019, TAJBank, Nigeria’s second Non –Interest financial institution, has announced the launch of its services...

Dr. Olugbodi Clinches Brand Leadership Award

In recognition of his giant strides and outstanding performance in the Integrated Marketing Communication industry, the Executive Vice Chairman...

List of Guaranty Trust Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...
- Advertisement -
- Advertisement -

Nestle Nigeria Plc reported a topline growth of 4% from N203.14bn in 9M 2018 to N211.35bn in 9M 2019. YoY, cost of sales declined by 2%, while operating profit increased by 16% notwithstanding the higher operating expenses for the period. Profit before tax (PBT) grew YoY by 18%, while profit after tax (PAT) increased YoY by 11% to N36.84bn (9M 2018: N33.12bn) on the back of higher effective tax rate. Management declared an interim dividend of N25.00k (9M 2018: N20.00k).

Sustained topline growth amid pressured consumers’ wallet

Nestle continues to impress, though at a slower pace in driving revenue growth despite the challenging operating environment amid pressured consumers’ wallet. In its 9M 2019  report, revenue grew by 4% to N211.35bn in 9M 2019, driven by a 2% and 7% growth in the food and beverage segment of the business. Revenue from the food segment grew  YoY from N129.07bn to N131.80bn in 9M 2019, while revenue from beverage segment advanced from N74.07bn to N79.55bn in 9M 2019. We attribute this growth to brand loyalty and continued proactive stance by management in meeting the changing taste and needs of consumers by way of new product launch and innovative packaging.

On the other hand, while revenue grew, the group continue to optimize its production expense as evidenced by the YoY decline in cost of sales. Expressly, cost of sales declined  YoY by 2% from N116.98bn to N115.03bn in 9M 2019. Quarter-on-quarter (QoQ), it increased at a faster pace to revenue. While revenue grew QoQ by 3% to N69.44bn in Q3  2019, cost of sales rose faster by 5% to N39.21bn in Q3 2019, eroding the gains in production cost margin by 100bps from 53% in H1 2019 to 54% in 9M 2019. Though no disclosure notes for the cost of sales in the 9M report, we believe that the YoY decline was due to local input cost substitution. The group has successfully introduced the use of locally produced items such as soya bean, maize, cocoa, palm olein and sorghum in its products.  As a result, gross profit grew YoY by 12% from N86.15bn to N96.31bn in 9M 2019.

Read:  See where your state ranks in growing debts
Read:  Buy/Sell/Hold: Nestle Plc

Higher operating expenses cushioned by lower net finance cost

The group’s operating expenses increased YoY by 7% from N36.79bn to N39.26bn in 9M  2019, driven by higher marketing and distribution expenses for the period. Marketing and distribution expenses grew YoY by 9% from N29.74bn to N32.31bn in 9M 2019, a reflection of competition as the group drive marketing and promotional activities to retain market share. Supported by a 1% decrease in administrative expenses, operating profit YoY grew from N49.36bn to N57.05bn in 9M 2019.

On the strength of a 61% decline in net finance cost from N1.27bn to N496mn in 9M 2019,  PBT grew by 18% to print N56.55bn in 9M 2019 (9M 2018: N48.09bn).

Read:  Communication Effectivity: Ways Military Digital Signages Helps Military Facilities and Communities

Historical Performance

N’m n9M’159M’169M’179M’189M’19
Revenue107,986129,482185,242203,135211,347
Cost of Sales(59,975)(77,549)(109,362)(116,985)(115,035)
Gross Profit48,01151,93375,88186,15096,312
Operating Profit24,67625,37043,08549,36040,434
Profit Before Tax20,8145,50434,47948,08956,554

Source: Company accounts

Recommendation

We applaud management for consistent topline growth, albeit, at a slower pace amid the challenging operating environment. We expect the group’s goodwill, marketing and promotional activities to continue to support revenue growth. Also, we expect the group’s cost optimization drive to continue to support bottom-line.

Overall, we have a revised EPS of N63.55k and a fair value estimate of N1,088.41k on the stock. At the market price of N1,150.00k, the stock is trading at 5% premium to our fair value estimate. Thus, we revised our recommendation on the stock to a HOLD.

Financial Statement Summary

Nestle Nigeria Plc Resilient Amid Challenging Operating Environment

WSTC Securities Limited

- Advertisement -

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

AFDB approves $124.2M loan for water sector reforms in Akure to improve access to safe drinking water & sanitation

The project is set to address bottlenecks in critical water supply services to households in the densely populated project...

VinAI Announces Scientific Research at the World’s No.1 Conference on Artificial Intelligence – NeurIPS 2019

HANOI, VIETNAM - Media OutReach - 13 December 2019 - VinAI Research (directly under Vingroup) has just announced the first two scientific research results...

Vitol Signs 10-Year Deal to Buy Nigeria’s LNG from 2021

Commodities trader Vitol has signed a 10-year deal with Nigeria Liquefied Natural Gas (NLNG) to buy 500,000 tonnes of LNG per year, ramping up...

Global 5G subscribers to reach 12.9 Million this year, 1.3 billion in 2023 – Report

Global 5G subscribers are set to rise rapidly from 4 million at the end of Q3 to 12.9 million by the end of the...

More Articles Like This