We assess the bottom of the pyramid (BOP) consumer in Nigeria and analyse which companies both private and public play this segment of the population. We provide a cross comparison of consumer names and the sector across frontier markets. We also provide results of our consumer survey and launch a CPI tracker for Nigeria. Based on our analysis, we conclude that GlaxoSmithKline Nigeria (GSK) is the only BUY (maintained), but we lower our TP to NGN42.0 (NGN52.8), implying 22% upside potential. However, given the macro uncertainty in Nigeria, we think investors should focus on Pakistan and Egypt instead.

Focus on Pakistan and Egypt

With the deterioration in the macro situation in Nigeria, the dwindling disposable income of the consumer, and the anticipated devaluation of the naira, we believe the operating environment will remain tough. Here we analyse companies we believe will be able to weather the storm in Nigeria, however, we prefer Juhayna (BUY; TP EGP10.6) in Egypt and Packages (BUY; TP PKR863) in Pakistan as the macro is structurally stronger and consumer companies continue to exhibit growth.

Proprietary survey of the Nigerian consumer

The BOP accounts for ~87% of Nigeria’s population, according to the UN. Globally, within the BOP, consumers tend to spend approximately ~60% of their disposable income on food and beverages. In Nigeria, food accounts for 52% of BOP household spending. We believe GSK Nigeria and Flour Mills of Nigeria (FMN) play this segment best. We conducted a survey of consumers in Lagos and met with numerous listed and non-listed companies (such as Fan Milk, Chi Limited and La Casera) to get a sense of what is happening on the ground and how best to play the BOP. We launch a CPI tracker in conjunction with Yvonne Mhango, our SSA economist. We also compare Nigeria’s FMCG sector vs its frontier market peers and make the case that MNC subsidiaries in Nigeria, apart from Nestlé Nigeria, have underperformed their globally listed peers, yet trade at unjustified premium valuations.

GSK & FMN stand out in Nigeria

Within our coverage universe we analyse historical earnings performance, and assess debt profiles, distributors, SKUs, dividend policies and raw material sourcing. We also look at parent structures and their track record with minorities in subsidiary-listed businesses and their ability to play the BOP. Despite Nestlé Nigeria ranking high, we believe valuations are expensive and growth limited. As a result we downgrade to SELL (from Hold) with a new TP of NGN766.4 (previously NGN950.0). We believe GSK is the best play on the BOP at the cheapest valuation vs its peers, followed by FMN. We rate GSK BUY with a new TP of NGN42.0 (previously NGN52.8), and upgrade FMN to HOLD (from Sell) with a new TP of NGN28.7 (previously NGN29.83). Across our coverage universe we believe Packages, Juhayna and 7UP Bottling Co. are the top BUYs.


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