Earnings Report /
Nigeria

Nestle Nigeria: FY 19 net income below expectations on weaker margins and higher effective tax

  • Nestle reported a 6% yoy increase in FY 19 PAT to NGN45.7bn, but this was 12% lower than our expectation

  • Management announced a final dividend of NGN45.00 per share

  • We maintain our Buy recommendation on Nestle with a TP of NGN1,460, suggesting an ETR of 34%

Ayodeji Dawodu
Ayodeji Dawodu

Equity Research Analyst, Industrials

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Tellimer Research
2 March 2020
Published byTellimer Research
  • Nestle reported a 6% yoy increase in FY 19 PAT to NGN45.7bn, but this was 12% lower than our expectation
  • Management announced a final dividend of NGN45.00 per share
  • We maintain our Buy recommendation on Nestle with a TP of NGN1,460, suggesting an ETR of 34%

Nestle Nigeria reported a 6% yoy increase in FY 19 net income to NGN45.7bn, but 12% lower than our expectation due to a weaker gross profit margin and higher effective tax rate. Nonetheless, the company’s net income growth was driven by the 7% yoy uptick in revenues and a 200bps yoy expansion in gross profit margin to 45%.

Management announced a final dividend of NGN45.00 per share, against our NGN30.5 per share forecast, representing a dividend yield of 4%.

We maintain our Buy recommendation on Nestle with a TP of NGN1,460, suggesting an ETR of 34%. Despite the weak macroeconomic environment, we are optimistic on Nestle’s medium-term performance due to: 1) the strength of the brand and strong distribution network; and 2) the company's efficiency in managing operating cost pressures.

Key positives 

  • Revenue up 7% yoy, in line with expectation
  • Gross profit margin expansion to 45% in FY 19, compared with 43% in FY 18
  • Net income increased by 6% yoy

Key negatives

  • Higher effective tax rate of
  • Opex to sales ratio of 20% in FY 19, against 16% in FY 18.
Table 1: Nestle financials (YE: December)
NGNmnFY 19FY 18yoy

Revenue

284,035

266,275

7%

Cost of goods

155,888

152,354

2%

Gross profit

128,147

113,920

12%

Opex

56,083

53,289

5%

EBIT

72,062

60,641

19%

Net finance cost

938

890

5%

Net income

45,683

43,008

6%

EPS

57.63

54.26

6%

Total assets

193,374

162,334

19%

Total liabilities

147,817

112,114

32%

Total equity

45,558

50,220

-9%

Source: Company financials, Tellimer