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Wednesday, March 11, 2020 / 10:15
AM / FBNQuest Research / Header Image Credit: Dreamstime
Outperform rating maintained
Nestle Nigeria's (Nestle) earnings declined -11% y/y to N8.8bn, missing
our estimate by around 42%. The primary driver for this variance was a negative
surprise in operating expenses which came in 23% above our estimate. Through
2019, management heavily invested in sales promotion (up +15% y/y to N15.5bn)
and advertising (up +10% y/y to N5.0bn). We expect marketing spend to remain at
similar levels for most of 2020.
However, we have cut both our sales and earnings estimates for 2020E by
around 6% because of the on-going global health pandemic which is likely to
weigh on local consumption over the next quarter. Our new price target of
N1,900 is down by a similar magnitude. We note that consumers were already
faced with headwinds such as higher value added tax rates (up 50% to 7.5% in
February) and an impending hike in electricity tariffs. We project sales and
earnings growth of 5% y/y and 12% y/y respectively for 2020E.
Volatile global oil prices, which have shed -45% ytd, pose by far the
largest macro risk to our forecasts. In the event that the oil output dispute
between Saudi Arabia and Russia persists, we expect the central bank to
re-introduce administrative measures to limit fx accessibility -a replay of
events in 2016/17. Nestle shares have shed -18% over the last month (ASI:
-12.2%). At current levels, our price target represents a potential upside of
87%.
As such we retain our Outperform rating on the stock. In our view, the
market sell-off presents an ideal opportunity for investors. Nestle shares are
trading on a 2020E P/E multiple of 15.8x for EPS growth of c.4% in 2021E.
Q4 PBT of N14.6bn grew 25% y/y on the back of solid sales growth
In
Q4, sales and PBT of N72.7bn and N14.6bn both grew by 15% y/y and 25% y/y respectively.
PAT however declined by -11% y/y to N8.8bn as a result of a higher effective
tax rate of 39.3% vs. 15.2% in the corresponding period of 2018. On a full year
basis, Nestle's sales of N284.0bn were up 7% y/y, helped by exports to Burkina
Faso, while PAT of N45.7bn, up 6% y/y, missed consensus' N48.8bn forecast. On a
q/q basis, PBT fell -10% q/q largely because of a double-digit rise q/q rise in
operating expenses which more than offset gains on the gross profit and net
finance expense lines. Nestle proposed a final dividend of N45.00 per share
(vs. our N40.00 forecast) which implies a yield of around 4% at current levels
and represents a 17% y/y increase compared with the dividend paid in 2018.
Related News
1.
NESTLE
Declares N45.7bn PAT in Q4 2019 Result,(SP:1130.0k)
2.
NESTLE Appoints Mrs. Juliet Ehimuan
As An Independent Non-Executive Director
3.
NESTLE Notifies of Board Meeting and
Closed Period
4.
CBN Restricts FX For Milk and Dairy
Products Importation; Exempts Nestle and 5 Others
5.
NCM2020 (19) - Consumer Goods Sector
- NESTLE Tops on PAT Margin As UNILEVER Tops on PE Ratio
6.
Nestle Nigeria Q3 2019 Results
Review: 2019-20E Sales Growth Ests. Below 10%
7.
Nestle Nigeria Plc - Disappointing
Sales, Cost Pressure Dampens Earnings
8.
NESTLE Notifies Of Change To The
Board Of Directors