Thursday, March 08,
2018/ 08:52 AM / FBNQuest Research
Underperform rating maintained
Nigeria’s (Nestle) Q4 sales were the weakest in 2017 and showed a q/q decline
for the first time in a decade. Compared with our forecast, sales missed by
11%. We believe that topline growth was driven primarily by unit volume growth
unlike in the previous three quarters when higher pricing spurred growth.
estimate that Nestle raised prices by c.35-40% in H2 2016. Looking ahead, we do
not expect Nestle to raise prices aggressively in 2018 given growing
competition from imported products. As such, we have cut our sales growth
estimate for 2018 by c.500bps to 10% y/y and anticipate that gross margin
contraction would persist.
down the P&L, Nestle significantly deleveraged its balance sheet in 2017.
Total debt declined by around 50% to N24bn (c.US$70m) while cost of debt fell
by c.-200bps to 8%. As such we do not anticipate any significant negative
impact on the P&L coming from this line as seen in prior years.
that Nestle has drawn down only US$15.2m out of a 7-year US$30m loan which
Nestle S.A. (parent) approved in 2017. Additionally, we have lowered our tax
rate to 28%, recognising the potential tax relief which may be realised from
the newly commissioned Milo ready-to-drink plant at Agbara Industrial Estate,
price target of N985.0 is down 15%, mainly because our WACC of 14.9% is higher
(previously 14.0%) because of the deleveraging. Nestle shares have
shed -11.3% ytd (vs. +12.3% return on the NSE ASI).
Our price target
implies a potential downside of -28% from current levels. Consequently, we
retain our Underperform rating on the stock. At
current levels, Nestle shares are trading on a 2018 P/E multiple of 26.4x for
10% EPS growth in 2019E.
Benefits from tax relief reversed y/y PBT decline
posted sales growth of 12% y/y to N58.9bn while PBT declined by -23% y/y to
N12.4bn in Q4 2017. However, PAT grew 44% y/y to N10.7bn on the back of a
relatively low tax rate of 13% compared with 54% in the corresponding quarter
of 2016. On a segmental basis, topline growth was driven by a 21% y/y rise in
beverage sales to N22.0bn.
in Q2 and Q3, gross margin contracted by -220bps y/y to 42.4%. The major downside to this set of numbers was a
double-digit y/y rise in operating expenses to N12.4bn. The combined impact of
the gross margin decline and opex growth led to a PBT decline of -23% y/y.
with our forecasts, Q4 sales and PBT came in behind our estimates by around 11%
and 8% respectively. Nestle proposed a final
dividend of N27.5/share (total dividend of N42.50); this implies a total
dividend yield of 3%.
Nigeria Plc - Mixed Performance in Q4, But Outlook Still Intact
Declares N33.72 bln PAT in 2017 Audited Results; Proposes N27.50k Final
3. Nestle Nigeria Plc FY 17 - Earnings Rebound to its
Strongest Level on Record
4. Nestle Nigeria Reports
Impressive 2017FY Results
5. Nestle Nigeria Plc Announces
Board Meeting Date and Closed Period
6. Nestle Nigeria Plc: Steady
Earnings Momentum, Committed To Profit Stability
7. Nestle Nigeria Reports Q3 2017
Results - Net FX Loss of –N6.0bn Offset Strong Underlying Profits
8. NESTLE Declares N22.98 Bln PAT
in Q3 2017 Result,(SP:1230.00k)
9. Nestle Plc Board Set to
Deliberate on Payment of Interim Dividend
10. Nestle Plc Announces Board
Meeting and Closed Period
11. Nestle Nig. Plc Appoints Mr.
Jagdish Kumar Singla as the Finance & Control Director