NESTLE Nigeria PLC yesterday published 9M-2018 results with EPS growth of 81% y/y in Q3. The y/y EPS growth was underpinned by volume-led revenue growth, stronger gross margin, and significantly lower net finance charges, all of which offset high-double digit increase in operating expenses.
On the 9M-18 EPS of NGN41.78 (+44% vs. 9M-17), the board has proposed interim dividend of NGN20.00/s, in line with estimate.
According to a team of analysts from Codros Capital Nigeria, Q3-18 revenue grew by 7% y/y, but was below their estimate by 3%. Compared to Q2-18 however, revenue was almost unchanged, and surprisingly so, given that Q3 has historically been a relatively stronger quarter for Nestle.
“We have observed a similar trend of weak July-September revenue performance among the consumer goods companies that have published results thus far, but specifically, Nestle’s slower q/q revenue growth is linked to the Beverage segment where volume declined marginally. Beverage revenue declined by 1% y/y (7% q/q), from 13% y/y (5% q/q) and 17% y/y (11% q/q) respective growth in the two quarters of H1-18,” they stated.
Elsewhere, the Food segment maintained upward growth trend at 12% y/y and 4% q/q in Q3-18 (vs. 11% y/y and 7% y/y in Q2 and Q1 respectively). Food now accounts for 64% of revenue, from 63% in 2017FY and 61% historical average. Seasoning continues to drive Food revenue, with Maggi Naija Pot increasingly gaining popularity across middle income households. Renewed demand for Golden Morn was also supportive of Food revenue in review quarter, after a challenging H1.
In Q3-18, the analysis showed that CoGs grew at slower rate of 4% y/y, consequently producing gross profit growth of 11% y/y. Gross margin during the period was 45.1%, Nestle’s highest since Q1-16, and slightly beating the 44.6% we estimated. There were no price increases during the period from our routine checks.
OPEX grew 19% y/y in Q3-18, with the ratio-to-revenue coming in at 19.7%, the highest since Q4-17. The increase in OPEX was however offset by revenue growth and much stronger gross margin, resulting in EBITDA growing by c.30% y/y. For the first time this year, no impairment loss was recorded.
Their report shows that Nestle recorded net finance cost of NGN991 million (from NGN600 million net finance income in Q2-18) in Q3-18 – albeit lower by 84% y/y – with net FX loss of NGN50 million (-99% y/y) and 51% y/y decline in interest income.
Compared to Q2-18, EPS was down 9%, driven by higher OPEX (9.7%) and the net FX loss of NGN50 million (vs. NGN590 million net gain in Q2-18). Effective tax rate in the quarter was 28%, from c.30% and c.37% respectively in Q2 and Q1.
In sum, they stated that Nestle’s Q3 EPS was near their expectation (at 3% variance), and is impressive, in their view. The result stands out among all the FMCG companies’ results (both 9Ms and Q3) we have seen thus far. Annualized, Nestle’s 9M-18 EPS and EBITDA are above 2017FY (31% and 26% respectively) and 2018 consensus estimates (0.1% and c.15% respectively), while they expect positive reaction to follow.


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