Nestle Nigeria Faces Net Loss in 2023FY Despite Strong Operating Profits, FX Woes Impact Bottom Line

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Nestle, a leading player in the consumer market, revealed its 2023FY results, showcasing resilience amid challenges yet facing a setback due to FX losses caused by naira devaluation. Despite a notable increase in operating profit, the company reported a net loss of NGN79.96 billion, contrasting with the previous year’s profit of NGN49.00 billion.

 

 

 

 

Analysts have adjusted their target price downward by 8.4%, now recommending a “BUY” based on the current market conditions. The company’s ability to navigate through rising costs, naira devaluation, and weakened disposable income underscores its strategic prowess. However, concerns persist regarding the impact of FX challenges on future earnings, with dividends unlikely to be declared in 2024E.

 

 

 

Looking ahead to 2024E, Nestle anticipates upward price adjustments in its food and beverage segments, supported by robust brand loyalty and the introduction of new brands like NIDO Milk and Soya Instant Powder Mix. Revenue growth of 21.0% y/y is forecasted for 2024E, with a focus on cost management and domestic sourcing to bolster gross margin.

 

 

 

Despite these efforts, increased finance costs and FX losses are expected to affect profitability negatively, leading to a projected net loss of NGN154.13/s for 2024E. This outlook also impacts free cash flow (FCF), with a negative print expected for 2024E, although a transition to positive FCF is anticipated beyond that year.

 

 

Valuation analysis incorporates a blended approach, combining discounted cash flow (DCF) and sector-relative valuation methods. With a target price of NGN1,194.35/s for Dec-2024, analysts emphasize the company’s long-term growth potential, albeit with challenges to overcome in the near term.


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