Wednesday, March 16, 2016 12:35 PM / FBNQuest Research
Implications: No significant changes to consensus estimates expected
Positives: Q4 sales and PAT up 6% y/y and 21% y/y respectively. Net finance costs down -80% y/y to N562m
Negatives: quarterly trend negatively surprised with sales coming in flattish q/q; PBT and PAT down -17% q/q and -22% q/q resp.
This morning, Nestle Nigeria (Nestle) reported Q4 2015 results which showed a continued recovery on all key line items on the firm’s P&L. While sales of N43.3bn were up 6% y/y, PBT and PAT grew by much wider margins of 99% y/y and 21% y/y respectively.
Nestle’s topline recovery which began in Q2 2015 has been sustained for three consecutive quarters. According to management statements, sales were driven by an 8% y/y growth in the foods business.
We believe this is helped by continued product reformulation, an improved sales distribution network and relatively higher switching costs for the food category. Our channel checks continue to reveal flattish y/y pricing for key Nestle products. As such, we believe unit volumes of around 10% were the primary driver for the topline trend.
In addition to topline growth, a gross margin expansion of 305bps y/y to 44.7% and an 80% y/y decline in net finance charges boosted PBT growth which was up 99% y/y. We note that the strong PBT growth is helped by easy comparables given an unusually weak Q4 2014. We note that Nestle’s low reliance on imported raw materials continues to keep gross margin at healthy levels.
We await management’s comments on all of these lines. Sequentially, while sales were up 3% q/q, PBT and PAT were both down by 17% q/q and 22% q/q respectively. Compared with our estimates, sales and PBT were both ahead by around 5% respectively.
Nestle proposed a final dividend of N19.00, slightly ahead of our N18.50 forecast. This works out to a dividend yield of around 3% and a total dividend of N29.00 given Nestle’s interim dividend of N10.00.
Nestle’s full year 2015 PBT of N29.3bn is broadly in line with consensus estimate of N28.8bn. As such, we do not anticipate any material revisions to consensus 2016E estimates. Looking forward, we believe consumer goods firms will struggle given the continued macroeconomic headwinds.
Although the security in the north east is a lot better today, a combination of a higher inflationary environment, slower economic growth and lower disposable income would be major themes in 2016.
At current levels, on our published estimates, Nestle shares are trading on a 2016E P/E multiple of 24.3x for 6% EPS growth in 2017E.
We rate the stock Neutral. Year to date, Nestle shares have declined -19.8% compared with the NSE ASI (-10.3%) as estimates remain under review.
1. NESTLE Proposes N19.00 per share Final Dividend in 2015 Audited Result,(SP:690.00K)
2. Nestle sustains strong recovery in revenue base in Q3 15
3. NESTLE Announces 5.2 Revenue growth in Q3 30th Sep 2015
4. Nestle posts 5.18 growth in revenue 2.22 in PAT in Q3 15
5. Nestle Low reliance on imported raw materials boosts gross margin in Q3 15
6. NESTLE s Underperform rating unchanged