Nestle Nigeria Valuation 'Frozen' after Negative EPS

Equities investors in the Nigerian Exchange (NGX) left Nestle Nigeria Plc behind from getting re-rated amidst a strong rally that started last year. The company’s share price has been relatively stable after it slumped from its peak price.

In line with stock market movement, Nestle Nigeria Plc has not moved significantly after the earnings downturn in the third quarter of 2023. The earnings slump was driven by a strong increase in net finance costs.

The uncertainties in the economy remain a pressure cooker, reducing the consumer goods company’s margin amidst an accelerating inflation rate. Most investment analysts remain underweight on consumer goods stock due to uncertain future earnings performance.

In its unaudited financial statement, the company reported a loss per share of N54.33 in 9M-2023 versus EPS of N50.66 in 9M-2022. This appears to have reduced buying sentiment ahead of Q4 earnings release.

Despite about N6.3 trillion weekly gain registered in the stock market last week, Nestle Nigeria’s share price was flattish while its peers recorded positive price movement. The company’s market valuation remained below N1 trillion as the falling angel share price levelled at N1196, according to data from the local bourse.

Analysts attribute the slow movement to a lack of trading volume strong enough to provoke price movement as closely held stock. Transactions on the FMCG player have remained low as large numbers of shares are held in concentrated hands.

In its third quarter of 2023 unaudited results, Nestlé Nigeria Plc reported a 44.3% year-on-year decline in net profit to N6.9 billion. The slump in net income was mainly weighed by the surge in net finance cost and higher effective tax rate.

In the third quarter of 2023, Nestle Nigeria recorded a 21.4% top-line improvement to N134.8 billion, driven by 29.9% and 8.1% increases in the Food and Beverage segments to N88.1 billion and N46.7 billion, respectively.

Analysts said the pass-through from higher sales masked the 10.9% year-on-year increase in production costs.  This drove a 5.8 percentage point expansion in a gross margin to 39.2%.

Its operating expenses advanced by 19.9% year on year, spurred by 27% increases in licence fees and factory overheads. There was noticeable pressure from finance cost,  up 792.2% driven by the 294.1% spike in interest expense on financial liabilities to settle at N29.1 billion.

Analysts also note the expansion in the effective tax ratio of 44.5% further eroded earnings.  In the period, the company recorded a 42.1% expansion in its cash balance which settled at N 152.3 billion, aided by higher working capital. Nigeria Eurobond Slumps after CBN Resumes OMO Auction

Nestle Nigeria Plc’s revenue advanced by 18.93% year on year to N396.59 billion in its 9M 2023 results from N333.47 billion in the corresponding year.  The company’s revenue performance was buoyed by the 19.88% year-on-year growth in its domestic sales, settling at N396.10 billion. 

In the period, export sales pared significantly, down 83.10% year on year to N488 million in 9M 2023 from a whooping N2.89 billion in 9M 2022.  Nestlé’s food products and beverage segments showed growth, up 27.0% and 6.8% y/y to N254.38bn and N142.21 billion