Oct 30 (Lagos) - This morning, Nestle Nigeria (
NESTLE ) reported Q3 2017 results which showed that sales were up 29% y/y to N 63.3bn while PBT grew significantly, by 117% y/y. PAT came in at N 10.0bn compared with a loss after tax of –N51m in the corresponding period of 2016. Top line y/y growth continues to benefit from double-digit price increases which occurred in Q4 2016 mainly.
Analysts at FBN Capital in Ikoyi estimate prices across board were raised by around 35-40% on average over the last year. During the quarter,
NESTLE introduced a new product, Milo ready-to-drink, into the market. For now this product is only starting to gain market acceptance and as such analyst does not anticipate any meaningful impact on Nestle’s topline this year.
Similar to Q2, Q3 profitability was boosted by a gross margin expansion of 433bps y/y to 43.5% which we primarily attribute to relatively cheaper access to fx for imports. The big downside to this set of numbers was an fx loss of –N6.0bn in Q3 (-N11.2bn in 9M 2017) which compares with an fx-related loss of –N6.3bn in Q3 2016 (-N19.4bn in 9M 2016).
This fx loss was however not sufficient enough to offset gains coming through from topline growth and the gross margin expansion. Sales for both Nestle’s Food and Beverage categories were up by around 28% y/y to N39.1bn and N24.2bn respectively. Sequentially, while sales were up 4.2% q/q, PBT came in flattish, mainly on the back of the reported fx loss of –N6.0bn which compares with –N4.1bn in Q2. PAT declined -22% q/q due to a comparatively higher tax expense in Q3.
Compared with our forecasts, Q3 sales beat our N 58.9bn estimate by 7.6%. However, PBT came in -16% behind our estimate, mainly driven by a negative surprise on the net finance charges line. Nestle proposed an interim dividend of N 15/share (compared with our N10 est.); this implies a dividend yield of 1%.
On an annualised basis, Nestle's 9M 2017 PBT is tracking behind consensus PBT estimate of N48.0bn. As such, we expect downward adjustments to consensus estimates on the back of these numbers.
Looking ahead, analyst expect
NESTLE , like its peers, to continue to contend with the macroeconomic headwinds in 2018. In our view, sector leaders like Nestle are likely to fare better compared with competition. Given recent fx interventions by the central bank we believe imported competition will ultimately start to stage a comeback. Nestle shares have gained +52% ytd, outperforming the ASI by 16%.
Analysts at FBN Capital in Ikoyi rate the
NESTLE stock Neutral. Their estimates are under review.
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Q3 2017
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Actual
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Y/y
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Q/q
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Sales
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63,323
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29.1%
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4.2%
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cost of sales
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-35,785
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19.9%
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-0.3%
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Gross profit
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27,537
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43.4%
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10.8%
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-gross margin
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43.5%
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433bps
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258bps
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Operating expenses
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-11,152
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26.7%
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-1.9%
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Operating profit
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16,386
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57.6%
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21.5%
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Net int. and similar chgs
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-6,366
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9.9%
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92.2%
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PBT
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10,019
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117.4%
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-1.5%
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-PBT margin
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15.8%
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643bps
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-92bps
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Tax
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-3,587
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-23.0%
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80.5%
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Tax rate
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35.8%
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n/a
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1627bps
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PAT
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6,432
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n/a
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-21.5%
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-PAT margin
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10.2%
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1026bps
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-332bps
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reporting for easykobo.com on Monday, October 30 2017 from Lagos, Nigeria
Source - analysts at FBN Capital in Ikoyi. All opinions, targets, forecast and views expressed in this article are those of analysts at FBN Capital in Ikoyi. Easykobo does not endorse or oppose any views expressed in this article.