May 3, 2018/FBNQuest Research
Event: Nestle Nigeria (Nestle) reports Q1 2018 results
Implications: Downward revision to consensus 2018 PBT forecast likely
Positives: Sales of N67.5bn up 10% y/y and 15% q/q respectively
Negatives: Nestle reported a net finance charge of –N879m compared with a net finance income of N1.1bn in Q1 2017
Late on Monday, Nestle reported Q1 2018 results which showed that sales were up 10% y/y to N67.5bn while PBT declined by -5% y/y to N13.6bn. The primary driver for the decline in PBT was an -89% y/y decline in interest income to N281.3m, which led to a net finance charge of –N879m compared with a net finance income of N1.1bn in the corresponding quarter of 2017. Interest expense was down by -24% y/y following the continued deleveraging of the firm’s balance sheet.
A slight gross margin contraction of -22bps y/y to 38.2% and a 9% rise in opex also weighed on profitability. Notwithstanding, PAT was up by 3% to N8.6bn because of a relatively lower effective tax rate of 37% compared with 42% in Q1 2017. Sequentially, while both sales and PBT were up 15% q/q and 11% q/q respectively, PAT declined by -20% q/q. The q/q decline on the PAT line was driven by a lower effective tax rate of just 13% in Q4 2017.
Compared with our forecasts, while Q1 sales were in line, PBT came in behind our N16bn forecast by around 15%. The variance was driven by negative surprises on both the gross margin and net finance expense lines. On an annualised basis, Nestle’s Q1 sales and PBT are tracking behind consensus full year 2018E estimates of N275.4bn and N57.3bn respectively. As such, we anticipate downward adjustments to consensus estimates on the back of these numbers.
Looking ahead, we expect Nestle, like its peers, to continue to contend with growing competition as the macroeconomic environment improves. However, in our view, sector leaders like Nestle are likely to fare better. We also expect Nestle’s new products to gain more traction in the market this year. Nestle shares have gained +2.8% ytd compared with the ASI’s +7.9% gain.
We rate the stock Underperform. Our estimates are under review.
Nestle Nigeria Q1 2018 results: actual vs. FBNQuest Capital Research estimates (N millions)
