Economy
Stock Analysis: Nestle Nigeria Q1-18 EPS Behind Expectation; SELL
By Cordros Research
Nestle Nigeria Plc recently published Q1-18 result showing EPS grew by a marginal 3% y/y to NGN10.86, which is behind what the market expects for the period by 15%.
Compared to our estimate, the achieved EBIT was short by 1% while EPS missed by 25%, owing to significant variation (-161%) on the net finance cost line.
In-line revenue; 2018E estimate unchanged:
Q1-18 revenue grew by 10.3%, consistent with our 10% growth estimate for the period. Annualized, the achieved revenue is behind market expectation by only 2%. A 15% q/q revenue growth suggests volume recovered strongly from the slack in the Oct-Dec period of last year, although we estimate volume may have grown at low single digit relative to Q1-17. Food revenue grew by 7% y/y while Beverages –benefiting from a low base volume in our view – grew by a bigger 17% y/y.
Compared to Q4-17, both segments recorded 16% and 11% top-line growth respectively. Thus far from our routine checks, prices have been stable for most of NESTLE’s products compared with end-2017 levels, and although early – but we observed the gradually reducing on-the-shelve prices of consumer products across major outlets – reemphasizes our view on volume-led growth in 2018.
Our 10% revenue growth estimate for 2018E is unchanged.
Low Q1 gross margin; forming a trend?
Gross margin of 38.2% was achieved in Q1-18, slightly below the 39% we estimated for the period. Gross margin in Q1-17 was equally low (at least compared to Q4-16’s 45%) at 38.4%, before recovering to 42% average between Q2-Q4 of 2017.
We retain our 42% gross estimate for 2018E (vs. 41% in 2017FY), suggesting we expect recovery in subsequent quarters. Our estimate is in sync with the 41% gross margin the company had achieved historically before the bump to 45% in 2015FY. The major risks to our gross margin estimate are (1) lower selling price and (2) the increase we have observed thus far this year in the price of local maize. Although the risks are tempered by the (1) relatively lesser competition, given the strong loyalty that NESTLE’s brands enjoy, (2) stable and even improving currency exchange rate, and (3) softer prices of other raw material inputs such as sorghum, sugar, and dairy.
Q1-18 EBIT margin was lower by 8 bps y/y, driven majorly by the lower gross margin, and also because opex as a ratio of revenue only declined by a marginal 14 bps. We have 23% EBIT margin in our model for 2018E (the same 23% EBIT margin as in 2017FY), while noting that upside risks are almost the same as downsides.
Surprisingly high finance costs risk earnings growing below expectation:
The interest expense of NGN521 million (5% y/y and 158% q/q) and FX loss of NGN639 million (-38% y/y and 3118% q/q) reported in Q1-18 are both high in our view, considering NESTLE’s much reduced borrowings and the stable FX. We have consequently revised our finance cost estimate for 2018E higher by 105%, given that the amount reported in Q1 alone is more than half our prior estimate for the year. We should note that the expectation of a much lower finance cost carries significant weight both in our view, and the market’s of NESTLE’s earnings growth in 2018E. Gross loans as at end-march was NGN18.11 billion (vs. NGN48.7 billion in Mar, 2017 and NGN24.2 billion in Dec. 2017), the lowest since 2009FY.
Earnings estimate and valuation:
Compared to our previous estimate, we revise 2018E net profit lower by 6% to reflect the changes on the net finance cost line. On 2017FY results, our revised net profit estimate is higher by 37% (previously 46%). On our revised estimates, we have a DCF-based TP of NGN851.48 (previously NGN851.92) for NESTLE and maintain SELL rating. The stock is trading at forward (2018E) P/E and EV/EBITDA multiples of 27.4x and 18.3x respectively, at premium to Middle East and Africa peer averages of 18.7x and 12.4x.
By Adedapo Adesanya
A 10 per cent equity stake has been acquired by Odu’a Investment Company Limited in a subsidiary of FCMB Group Plc, FCMB Pensions Limited.
The move is aimed at strengthening its presence in Nigeria’s growing pension industry.
The company disclosed that the transaction was completed after receiving all required regulatory approvals from the National Pension Commission (PenCom) and the Central Bank of Nigeria (CBN), while the Securities and Exchange Commission (SEC) has also been duly notified.
Odu’a Investment said the acquisition represents a strategic investment in a resilient and steadily expanding segment of Nigeria’s financial services sector.
The company added that the deal also reinforces FCMB Pensions’ shareholder base through the entry of a long-term institutional investor.
Chairman of Odu’a Investment Company Limited, Mr Bimbo Ashiru, said the investment aligns with the organisation’s strategy of partnering with strong institutions operating in sectors critical to Nigeria’s long-term economic stability.
“This investment reflects Odu’a’s strategy of partnering with strong institutions operating in sectors that are central to Nigeria’s long-term economic stability and growth,” he said in a statement.
“The pension industry plays a critical role in mobilising long-term savings and strengthening the financial system. FCMB Pensions has built a solid platform serving contributors across Nigeria, and we see a significant opportunity to support its continued growth and impact,” he added.
Also commenting on the transaction, the Managing Director of Odu’a Investment Company Limited, Mr Abdulrahman Yinusa, described the deal as a vote of confidence in FCMB Pensions’ leadership and long-term prospects.
“Our partnership with FCMB Group Plc reflects confidence in FCMB Pensions’ strategy, leadership, and long-term potential. Together, we will work to expand its reach, support its strategic objectives, and deliver sustained value to contributors and other stakeholders,” Mr Yinusa said.
The investment brings together two established institutions with complementary strengths and a shared focus on long-term value creation. According to the company, the partnership positions FCMB Pensions to deepen market penetration and enhance service delivery within Nigeria’s contributory pension scheme.
Odu’a Investment Company Limited is an investment holding company jointly owned by the governments of the six South-West states of Nigeria.
The firm manages a diversified portfolio spanning real estate, financial services, hospitality, agriculture, and industrial investments, with a mandate to generate sustainable economic value and support regional development.
By Aduragbemi Omiyale
The chief executive of the Nigerian Exchange (NGX) Group Plc, Mr Temi Popoola, has said Nigeria’s capital market is undergoing a re-rating as global investors begin to reassess the country’s economic trajectory and investment potential.
“What we are seeing is a gradual re-rating of Nigeria. investors are beginning to look at the data more closely, the returns, the reforms, and the improving macroeconomic direction, and that is changing sentiment,” he said during a live interview on BBC Newsday in London.
He is in the United Kingdom as part of broader investor and stakeholder engagements during President Bola Tinubu’s state visit to Buckingham Palace.
Mr Popoola explained that Nigeria’s equity market has delivered strong returns in recent months, positioning it more competitively among emerging and frontier markets. According to him, this performance is helping to recalibrate long-held risk perceptions and attract renewed interest from international investors.
He added that improvements in Nigeria’s energy landscape, including increased domestic refining capacity and ongoing sector reforms, are helping to reduce the economy’s exposure to external oil price shocks, further strengthening investor confidence.
Mr Popoola emphasised that beyond short-term market movements, consistency in policy implementation will be critical in sustaining this shift in perception. “Global capital responds to clarity and consistency. As those elements become more evident, Nigeria naturally becomes more investable.”
He also highlighted the importance of sustained engagement with global financial centres, noting that platforms such as London play a key role in connecting Nigeria’s capital market to international pools of capital.
According to him, Nigeria’s evolving market structure, combined with ongoing reforms, is strengthening its position as a viable destination for long-term investment. “There is a broader recognition that Nigeria offers significant opportunities. The focus now is ensuring that this recognition translates into sustained capital flows.”
The NGX group chief concluded that Nigeria’s capital market is increasingly being viewed through a more balanced and data-driven lens, reflecting both its resilience and its long-term growth potential.
By Adedapo Adesanya
Global cryptocurrency platform, Luno, has launched a structured crypto prediction markets product in Nigeria, which will enable customers to apply their market knowledge to short-term crypto price events and earn USDC when their insights are correct.
The prediction market allows customers to express a view on whether the price of selected crypto assets, being BTC, ETH, SOL, DOGE, and XRP, will be above or below the daily price event. The market operates daily with clearly defined rules and settlement periods, offering customers structured, time-bound opportunities to act on their conviction.
Nigeria remains one of the most active crypto markets globally, with increasing demand for tools that combine simplicity and transparency. By introducing Prediction Markets focused solely on price levels, Luno aims to provide a fast, confident, and opportunity-forward format for market engagement.
Unlike traditional gaming or prediction firms like Polymarket and Kalshi, in which the odds are set by the company, Luno’s Prediction Market, powered by Limitless, is focused exclusively on crypto asset price movements within the Luno platform.
This means customers are not purchasing the underlying asset, but participating in a defined, outcome-based market that settles transparently based on real-time price data.
According to a statement, the launch reflects a broader shift in how customer behaviour is evolving in Nigeria’s growing crypto asset ecosystem, particularly as crypto asset adoption matures, many users are seeking more flexible and responsive ways to engage with markets beyond long-term holding or traditional spot trading.
Luno’s Prediction Markets product is designed to meet this demand within a familiar and regulated platform environment. The feature builds on how customers already interact with crypto asset prices – analysing charts, following market news, and forming views- and provides a structured framework for expressing those views.
According to Mr Ayotunde Alabi, chief executive of Luno Nigeria, the company is combining crypto education with a secure platform to help Nigerians confidently apply their market knowledge in a responsible and practical way.
“We are seeing a clear shift in how Nigerians want to engage with crypto assets. Many already follow price movements closely and form strong market views; we want to lead with education as well as provide a safe and secure platform to help them apply that knowledge. This feature is designed to be a natural extension for those who enjoy forecasting.
“By tying this to our ongoing educational initiatives, such as our scholarships with AltSchool, we are encouraging users to apply what they have learned about market analysis into a practical, responsible framework. Our priority is ensuring that where confidence meets opportunity, it is supported by the standards of trust our customers expect.”
Luno said it will further support the rollout with Learn & Earn educational content and tutorials explaining market mechanics and price determination. To promote informed decision-making and ensure the product is used responsibly,
Luno has embedded specific controls, including customers reading and acknowledging a risk disclosure before participating, as well as moving funds from their ordinary USDC wallet to a separate prediction wallet, which will be used to participate in prediction markets.
The firm also said that customers cannot hold both sides of the same market, in this case, Above and Below at the same time.
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