Nestle Nigeria reported Revenue growth of 6.7% y/y to N284.0 billion for FY 2019 from N266.3 billion and post-tax profit growth of 6.2% y/y to N45.7 billion from N43.0 billion in FY 2018. On a q/q basis, Revenue growth was down 4.7% to N72.7 billion in Q4 2019.
The company’s reported Revenue of N284.0 billion for FY 2019 beats our FY 2019 estimate of N278.2 billion while Net profit missed our estimate of N50.3 billion.
In our view, the impact of the coronavirus outbreak will have a mixed effect on Nestle’s FY 2020 performance. We see a positive impact in H1 2020 as consumers have stocked up and continue to stock up ahead of expectations of lockdown in various parts of the country. Nestle, with several essential consumables in its product portfolio, is a prime beneficiary of such bulk purchases.
However, post-COVID-19 is filled with uncertainties as possibilities of a possible recession grows, which implies a possibly bleak H2 that could smoothen out any gains from H1. Overall, we forecast a Revenue growth of 5.2% y/y to N298.9bn and Net Income growth of 15.3% y/y to N52.7bn in FY 2020.
[READ MORE: FCMB Group records N188bn revenue, grows Profit to N20.1billion)
Higher cost of equity reflecting the high-risk environment explains the marginal cut in our target price for Nestle to N1,323.27/s from N1,356.97/s. We note this implies a 73.0% upside to last Friday’s (2nd Apr 2020) closing price of N765/s.
On a forward basis, Nestle trades at a PE ratio of 11.52x, which is a steep discount to our peer average of 27.68x despite superior Revenue growth, Return on Equity, EBITDA margin and low leverage. In lieu of this, we review our recommendation to a BUY from a HOLD recommendation previously.
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