Nestle Nigeria Plc recently released its Q3 2022 financial performance with revenue increasing by 23% to N111.02bn, although slower than previous quarters (Q2 2022: +33%, Q1 2022: +26%). The growth in Q3 2022 was driven by a 27% year-on-year growth in its Food segment, and a 17% year-on-year revenue growth in its Beverage segment respectively. We believe price increases across the Company’s product drove the growth in these segments.

Despite price increases, gross margin lowered by 600 basis points to 33%. For context, cost of sales rose by 34% year-on-year to N73.94bn in Q3 2022 from N55.29bn in Q3 2021. We believe that the ongoing global supply chain disruptions and global inflationary pressures negatively impacted raw materials costs. The inability to fully pass on the costs to the consumers resulted in the gross margin decline.


In the near term, we expect profit margins to remain under pressure due to high operating costs. The global supply chain disruptions are likely to persist into Q4 2022 and in the near term. Also, higher energy prices and domestic inflationary pressures are two downsides that are expected to hurt margins in the near term. We expect the domestic inflationary pressures to negatively affect the company in two forms – (i) erosion of purchasing power which weakens consumer disposable income (ii) high business running costs.

In view of our expectations, we revised our forecasts to reflect the current realities of a more challenging macroeconomic environment. Therefore, we reviewed our earnings per share forecast for FY 2022 downwards to N57.30 (previous: N66.49).

By implication, our fair value for the stock is lower by 4% to N1,568.24. However, we recommend a BUY for the stock. Due to a general market selloff, the stock declined to a 52-week low of N1,215. Based on the fundamentals of the company (market leadership, essential products, pricing power to an extent, relatively strong management, and strong cash flows), we believe that the stock is undervalued.

Please follow the link “Nestle Nigeria Q3 2022 – Higher Operating Costs Remain a Headwind” to view the whole report.

Thank you.

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