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Thursday, August
06, 2020 / 05:40 PM / by FBNQuest Research / Header Image
Credit: Market Forces Africa
Modest increase to 2020-22E EPS forecasts
Nestle
Nigeria's (Nestle) Q2 PBT was down -23% y/y on account of a gross margin
contraction of -751bps y/y, reflective of an fx-induced inflationary
environment. The company sources the majority of its raw materials locally, but
the pass-through effect of the devaluation fueled an increase in local input
prices. That said, PBT beat our forecast by 21% on the back of a -10%
lower-than-expected opex. A flattish sales growth y/y also suggest that despite
the pandemic, Nestle fared better than competition (case in point: Unilever
Nigeria posted a -40% y/y sales decline).
Specifically, Nestle's sales were supported by a 49%
y/y increase in exports. We have adjusted our EPS forecasts for 2020-22E by an
average of 3%. Our forecast changes are however conservative relative to the
PBT variance of 9% in H1, because fx pressure on CoGS and opex are likely to persist
over the rest of the year. These adjustments and a roll-over of our valuation
to 2021 lead to a 7% increase in our price target to N1,636.2.
Year-to-date, Nestle shares have shed -20% and
underperformed the broad market index which is down -7%. The shares are trading
on a 2020E P/E multiple of 23x for average EPS growth of c.10% in 2022-22E. At
current levels, our price target represents a potential upside of 39%. As such
we retain our Outperform rating on the stock.
PBT decline primarily caused by higher production cost
CoGs increased by 14% y/y and drove the gross margin
contraction. In addition, net interest expense was 12% higher y/y. Opex was
down -7% y/y but this positive was eroded by negatives from the other line
items. On a sequential basis, sales were flat whereas gross margin contracted
by -374bps q/q. Opex was down -12% q/q whereas net interest expense increased
by 5x.
Essentially, PBT fell -6% q/q. Relative to our
forecasts, gross margin and opex beat by 127bps and -10% respetively, driving
the 21% positive surprise in PBT.
Related News
1.
NESTLE
Q2'20 Unaudited Results - Earnings Slide on Production Cost Pressures
2.
NESTLE Declares
N21.82bn PAT in Q2 2020 Results, (SP:1175.0k)
3.
NESTLE Notifies of Board Meeting Date and Commencement of
Closed Period
4.
Nestle Nigeria Maintained Outperform Rating in Q1 2020
Despite Cut to PT...
5.
NESTLE Declares N11.2bn PAT in Q1 2020 Results SP
N1000.00k ...
6.
NESTLE Notifies of Closed Period for Q1 2020 Accounts...
7.
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Over the 2020-21E Per...
8.
NESTLE Declares N45.7bn PAT in Q4 2019 Result,(SP:1130.0k)
9.
NESTLE Appoints Mrs. Juliet Ehimuan As An Independent
Non-Executive Director
10.
NESTLE Notifies of Board Meeting and Closed Period
11.
CBN Restricts FX For Milk and Dairy Products Importation;
Exempts Nestle and 5 Others
12.
NCM2020 (19) - Consumer Goods Sector - NESTLE Tops on PAT
Margin As UNILEVER Tops on PE Ratio