LAGOS, Nigeria, Capital Markets in Africa — NESTLE (HOLD, TP: N721.72) released its audited full year 2015 results earlier today. While topline came in below our expectations at N151.3 billion (PAFR 2015E: N157.5 billion), earnings were in line with our estimates with PBT up 19.9% to N29.3 billion (PAFR 2015E: N28.8 billion) and PAT up 6.8% to N23.7 billion (PAFR 2015E N24.2 billion). Key drivers for revenue growth (up 5.5%) were price increases, new product lines via the addition of the Wyeth Nutrition portfolio, and increased product exports (up 95.6% YoY to N3.1 billion).

Earnings were enhanced by margin expansion – GM, EBIT, and EBITDA margins were up +180bps, +194bps, and +181bps, respectively – on higher selling prices and cost management (COGs and opex were up 2.2% and 4.9%, respectively). Further aiding earnings were lower interest expenses (down 8%) on lower borrowings. PAT growth was however eased by the increase in taxes (up +163%) and effective rate (up to 19% vs 9% in 2014) as the company comes off pioneer tax status awarded for the Agbara factory expansion and the new Flowergate factory.. The company intends to pay a total dividend of N29.00 (N10.00 interim and N19.00 final) for FY15 implying a divi payout of 96.8% and yield of 4.2%.

Overall, given the weak macros – rising, inflation, FX illiquidity, squeezed disposable income – Nestlé’s number are impressive (under our coverage name, Nestle will be the only food and beverage producer posting YoY earnings growth) and we expect the company to continue to navigate the negative headwind better than its peers. We still see Nestle as fairly valued at current levels and maintain our HOLD rating, but will accumulate of further weakness. YTD, Nestle shares are down 21% vs 10.4% for the NSE ASI as the bears continue their surge on Nigerian equities.

Source: Lanre Buluro, Head, Investment Research 

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