TUE 26 OCT, 2021-theGBJournal- NESTLE published its Q3-21 unaudited financials after market close yesterday. The result showed a 17.2% y/y growth in the company’s EPS to NGN14.95 in Q3-21 (Q3-20: NGN12.76), on the back of solid top-line growth (+25.7% y/y). On the 9M-21 EPS of NGN42.37 (+5.2% y/y vs 9M-20), the board has proposed an interim dividend of NGN25.00/s translating to a yield of 1.8% on the last closing price of NGN1,405.00/s (26th October).
Revenue grew solidly by 25.7% y/y in Q3-21 (9M-21: +23.0% y/y) – the highest quarterly growth since Q3-17 (+29.1%) – underpinned by substantial growth across the company’s Food (+42.4%) and Beverage (+7.6%) segments. Based on our channel checks, we believe a c. 5.0% price increase in Maggi retail prices supported the growth in the food segment. For the beverage segment, higher sales volume drove the growth in this segment, with product prices in this segment broadly unchanged. On a quarter-on-quarter basis, revenue also grew by 7.1% with expansion in both Food (+9.0% q/q) and Beverages (+4.5% q/q) segments.
Gross margin contracted by 204bps to 38.7% in Q3-21 (Q3-20: 40.7%) as cost of sales (+30.0%) grew faster than revenue (+25.7%). The higher cost of sales reflects the pass-through impact of elevated inflationary pressures – food inflation averaged 20.3% in Q3-21 – on raw material costs. For clarity, NESTLE sources c.80% of its raw materials in Nigeria.
Similarly, EBITDA and EBIT margins declined by 43bps and 19bps to 24.4% and 22.0%, respectively, in Q3-21 (Q3-20: 24.8% and 22.1%) following the contraction in gross margin and a 13.0% y/y expansion in operating expenses. The higher OPEX was triggered by an increase in the administrative (+22.7% y/y) and selling & distribution (+10.9% y/y) expense lines.
NESTLE’s earnings were tempered by a 240.3% y/y surge in net finance costs as a faster increase in finance costs (+240.3% y/y) masked the increase in finance income (+228.4% y/y). The surge in finance cost was underpinned by the rise in interest expense from NGN1.62 billion in Q3-20 to NGN5.17 billion in Q3-21 following increased borrowings during the period. Thus, the company’s total debt increased to NGN71.72 billion as of 9M-21 (2020FY: NGN40.21 billion). In addition, a net foreign exchange loss of NGN562.84 million contributed to the woes.
Notwithstanding, PBT grew by 18.2% y/y to NGN18.21 billion in Q3-21 (Q3-20: NGN15.40 billion). Following a tax expense of NGN6.35 billion, PAT printed NGN11.85 billion (Q3-20: NGN10.11 billion).
Cordros Research analysts noted that although Nestle’s Q3-21 revenue growth remains supported by low base effect, it marked the fifth consecutive quarter of top-line expansion.
‘’Over the medium term, we believe the revenue growth is sustainable given the gradual pickup in the food segment amid stiff competition from unlisted brands. However, concerns remain on the growing finance costs arising from the increase in foreign currency debt amid the weakening naira. Overall, we expect the company to deliver strong earnings growth in 2021FY. NESTLE is down by -6.6% YTD, compared to the Consumer Goods index (-1.7%) and the broader All-Share index (+3.8%).’’
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