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Focus for the week: NESTLE NIGERIA PLC H1’24 Earnings Release – Revenue soars amid persistent macro challenges

September 2, 2024538 views0 comments

Revenue surges as losses abate in Q2

Nestlé Nigeria PLC recorded a significant improvement in revenue for Q2’24, up 67% y/y to ₦223.5 billion. This growth was primarily driven by higher pricing across its product catalogue, a strategy it has sustained in the face of continued headwinds. However, the company’s gross profit recorded a slower growth, of 41% y/y to ₦78.2 billion, underscoring higher cost factors. Costs pressures were also witnessed further down, as OPEX jumped 54% y/y to ₦36.2 billion. Consequently, EBIT’s growth slowed to 31% y/y to print at ₦42.2 billion. Meanwhile, Net finance expense fell by 22% y/y to ₦98.6 billion. All in, the company recorded a loss after tax of ₦34.2 billion, lower than the ₦66.2 billion recorded in Q2’23.

 

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In H1, the company reported a revenue of ₦407 billion, marking a 55% y/y growth, while gross profit printed at ₦127.3 billion, (+19% y/y). Further down, EBIT inched up marginally by 4% y/y to ₦63.1 billion, following cost pressures witnessed across the two quarters. Additionally, the company’s financial performance was further exacerbated by increased net finance expenses, which skyrocketed by 143% y/y to ₦315.6 billion, primarily due to significant foreign exchange losses. This resulted in a pre-tax loss of ₦252.5 billion (H1’23: ₦69.1 billion loss), while net loss printed at ₦176.9 billion (H1’23: ₦50.0 billion).

 

Balance sheet wobbles as cash balance declines

Despite a ₦150 billion gain from PPE revaluation, the company’s balance sheet deteriorated in H1’24. A sharp increase in loans from ₦402.3 billion to ₦653.9 billion, coupled with negative retained earnings of ₦255.5 billion, resulted in liabilities exceeding assets by ₦104.9 billion. Cash balances plummeted to ₦37.7 billion from ₦167.7 billion in FY’23, primarily due to ₦231.8 billion in realized FX losses.

 

Outlook: losses to abate on lower FX volatility

Looking ahead to H2’24, we expect Nestlé Nigeria to continue navigating a challenging economic landscape albeit with lower volatility. We project a revenue of ₦873.7 billion, up 60% y/y, driven by sustained price increases, while gross profit is anticipated to grow to ₦340.8 billion (+57% y/y). We also expect OPEX to stay elevated, printing at ₦144.4 billion, up 54% y/y. Net finance expenses are expected to climb slowly in H2 bringing FY’24 print to ₦360.4 billion, as we anticipate lower volatility in the FX market. As a result, we project FY’24 loss to moderate to ₦106.6 billion (FY’23 ₦79.5 billion loss).

 

What shaped the past week?                     

 

Equities: This week, the local market closed in the green, driven by broad-based gains across sectors. The ASI grew by 0.63% w/w to close at 96,580.01 points. All sectors closed in the green, with the Oil & Gas sector posting the highest gains. OANDO (+60.71% w/w) drove the rally in the Oil & Gas space (+8.50% w/w), as investors continued to react to its acquisition deal. The Insurance sector added 5.76% w/w driven by gains in SOVRENINS (+21.43% w/w), CORNERST (+16.38% w/w), UNIVINSURE (+12.90% w/w), and GUINEAINS (+12.20% w/w). Also, buy-side activities in INTBREW (+13.95% w/w) saw the Consumer Goods sector add 3.48% during the week. Additionally, the Banking space (+1.96% w/w) was mostly lifted by FBNH (+10.57% w/w). Finally, the Industrial Goods (+0.08% w/w) index witnessed a marginal gain driven by increases in JBERGER (+31.15% w/w) and JAPAULGOLD (+13.72% w/w).

 

Fixed Income:

During the week, the CBN released a circular which operationalized the new SDF rate at 25.75% but capped at ₦3 billion while additional sums will earn a rate of 19.00%. This signaled a plateauing of rates in the fixed income market and strengthened bullish sentiments. Also, given robust system liquidity during the most part of the week, interbank rates declined. The OPR fell by 767bps w/w to 18.11%. At the end of the week, yield movements were seen on the 91-Day bill (-568bps), 364-Day bill (-3bps), 2-year note (-4bps), 3-year note (-3bps), and 7-year note (-3bps).

 

Currency: At the close of market trading on Friday, the Naira depreciated by ₦18.67 w/w to close at ₦1,598.56 per dollar.

Domestic Economy: Recently, the National Bureau of Statistics (NBS) released Nigeria’s Q2 2024 Gross Domestic Product (GDP) results. The GDP grew by 3.19% y/y (Vetiva Estimate: 4.61% y/y), higher than the 2.51% y/y expansion in Q2’23. This moderate growth reflects ongoing efforts to stabilize the economy amid various internal and external challenges. The NBS added that the real growth of the oil sector was 10.15% y/y in Q2 2024, indicating an increase of 23.58 percentage points relative to Q2 2023’s -13.43%. The oil sector contributed 5.70% to the total real Gross Domestic Product in Q2 2024, up from the figure recorded in Q2 2023 where it contributed 5.34%. Despite a drop in oil production between Q1 and Q2 of 2024, the overall performance of the oil sector is expected to remain strong in 2024 and contribute positively to GDP growth. The services sector is also anticipated to continue driving growth as Finance and ICT grew 28.79% y/y and 4.44% y/y respectively in Q2 2024. That said, we project that 2024 GDP will come in at 3.54% y/y, thus sustaining its recovery path. However, challenges remain, including elevated inflation driven by supply chain disruptions and currency depreciation.

 

 

Global: Federal Reserve policymakers on Friday got fresh confirmation that inflation is continuing to ease, as the personal consumption expenditures (PCE) price index rose slowly at 2.5% in July from a year earlier. The Nasdaq and S&P 500 rose on Friday following this, as expectations were raised that the Federal Reserve will cut interest rates modestly in September. The S&P 500 index was up 0.18% at 5,601.77 points. The Nasdaq Composite Index rose 0.31% to 17,571.40 points, while the Dow Jones Industrial Average was down 0.17% at 41,263.32 points. Also, inflation in the 20-country euro zone fell to 2.2% in August, its slowest pace since July 2021, according to Eurostat’s flash reading and near the European Central Bank’s 2% target. On Friday, pan-European STOXX 600 index (STOXX), edged up 0.1%, closing above 525 points. While the FTSE 100 closed higher by 0.17% on Friday at 8392.42 points. Asia-Pacific markets climbed on Friday after economic data from the U.S. calmed recessionary fears. Japan’s Nikkei 225 rose 0.74% to close at 38,647.75, its highest level since July 31, and the Topix also climbed 0.73% to 2,712.63 after the data release. Hong Kong Hang Seng index gained 1.44% as of its final hour, leading markets in Asia, while mainland China’s CSI 300 rose 1.33%, rebounding off a near seven-month low and closing at 3,321.43.

 

What will shape markets in the coming week?

Equity market: Despite the impressive performance this week, the market closed the month of August in the red, down 80bps m/m. Also, with the ASI closing in the green for the first time in three weeks, investor sentiment is cautiously optimistic. However, with mixed performances in other sectors, the sustainability of this momentum will be closely watched. Monday’s session will likely set the tone for how the market approaches the new month, with investors eyeing attractive offers, while taking profit on some of the recent gainers.

 

Fixed Income: In next week’s trading session, we expect muted activities in the NTBs space as investors await the auction scheduled for next week. We also expect that the results from the auction would determine the attractiveness in the Bonds market.

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