Nestle Nigeria extends its strong revenue growth momentum

September 16, 2025 BusinessTrumpet

This report evaluates the investment case for Nestlé Nigeria Plc (“Nestlé Nigeria” or “The Company”). In H1 2025, the company extended its strong revenue growth momentum, for the second consecutive year (Group: +42.8%) primarily anchored on local sales. This translated to a positive
change in earnings per share (EPS) to N63.80 in H1 2025 from a loss per share of N223.20 recorded in H1 2024. The improved performance was driven mainly by stability in foreign exchange environment, but also
complemented by increased operational efficiency. We believe opportunities still exist for the bottom-line to strengthen in our forecast periods (2025F – 2030F) driven by sustained revenue growth, FX stability
and operational efficiency. In line with this, we recommend Nestlé Nigeria as a HOLD, with a Target Price (TP) of N2,063.15/share derived from our blended valuation approach

Sustained CAPEX investment drives revenue growth.

The company’s deliberate capital expenditure initiative enabled successful product launches
and volume expansion. We project this to drive our revenue growth forecast at a CAGR of 25.12% from 2025F – 2030F. In tandem, we expect EBITDA to grow by a CAGR of 26.48%. As a result, we forecast a positive EPS of N135.12 in FY25, from a record loss per share of N207.65 in the previous year. This is
driven by the sustained revenue surge recorded on the back of prior CAPEX
investments and foreign exchange stability.

Our Target Price (TP) of N2,063.15/share alongside a HOLD rating, implies a
10.33% potential upside. Nestlé Nigeria currently trades at a significant
discount to its MEA peers on an EV/EBITDA basis (4.02x vs. 7.2x), while its P/E
ratio of 10.75x, slightly above than the peer average of 10.48x. Our conservative valuation reflects the stock’s year-to-date strong performance (113.71%), as the current market price continues to approach our year-end
target.

FX volatility remains the critical risk to our investment thesis. The severe
devaluation in 2023-2024 heavily impacted Nestlé Nigeria, particularly due its
significant dollar-denominated liabilities. Management has proactively reduced FX exposure by repaying $40mn of intercompany debt since 2024. We expect the company to remain highly cautious regarding new external borrowing, prioritizing operating cash flow and deleveraging the balance sheet until distributable equity position is restored.

Investment-Led Growth Strategy Driving Top-Line Momentum Nestlé Nigeria’s robust revenue growth is a direct payoff from a deliberate and sustained capital expenditure (CAPEX) initiative. Strategic investments in new production capacities and modern technologies have fortified its supply chain,
enabling the successful launch of a number of new products (for example, MAGGI® Chicken reformulation, CERELAC® Rice) and supporting volume growth across its portfolio. This strategy has catalysed significant growth in revenue. In FY 2024, sales surged 75.2% YoY to N958.8bn, a clear demonstration of solid operational execution and strong pricing power.

The foundation for this was laid in preceding years, with cumulative CAPEX of N88.97bn in 2022 – 2023. The pace of expansion remains elevated. Annual CAPEX has grown from N16.5bn in 2020 to N72.6bn in 2024, driving a 5-year Tangible Fixed Asset CAGR of 35.8%. Critically, revenue growth (5-year CAGR: 27.3%) has yet to fully reflect this aggressive investment decision, underpinning our thesis for sustained top-line expansion in the coming years as the upside continues to filter through.

This momentum has carried decisively into 2025. H1 2025 revenue expanded 42.8% YoY to N581.1bn, again fueling its ongoing CAPEX intensity with N55.2bn spent in the period. We see a clear runway for continued growth as investments reach full utilisation. We project FY2025 revenue to breach the N1trn mark, settling in a range of N1.09trn to N1.28trn. This will be driven by:
(i.) increasing volume across most categories, led by the Food segment (~62% of sales) with support from Beverages
(~38%).
(ii.) Geographically, the dominance of the Nigerian market (99% of revenue), with exports remaining immaterial to the
top-line performance.

Significant Outperformance Versus Macro and Sector

Nestlé Nigeria’s growth trajectory demonstrates a stellar divergence from the broader economic and sector trends. The company’s trajectory, though tied to Nigeria’s macro context, reflects its established market position and relative sector strength.
Nigeria’s nominal GDP expanded at an 11.5% CAGR from 2020-2024 (and a 12.4 % average growth rate). Conversely, the Food, Beverage & Tobacco grew slightly faster 11.9% CAGR (at a 10.5% average), underscoring steady but not outsized sectoral growth. Nestlé Nigeria’s revenue CAGR of 27.3% (29.7% average) exceeded these benchmarks across the same period. However, the Company’s CAGR is heavily skewed by the anomalous 75.2% YoY growth in 2024. Excluding this outlier, the underlying growth trend is materially lower, though still moderate.

Margin Compression Driven by Input Costs

Historical analysis reveals persistent cost pressures that have challenged margin resilience. From 2020 to 2024,the cost of sales (ex-depreciation) grew at a 5-year CAGR of 31.3%, outpacing the revenue CAGR of 27.3%. On an average basis, cost growth of 36.5% also exceeded average revenue growth.This structural margin pressure is primarily attributable to raw material costs, which dominate the cost structure.The significant 114.1% YoY surge in raw material cost in 2024 is a clear indicator of severe impact from sharp Naira devaluation on imported inputs.However, H1 2025 marked a positive change in the revenue trend . While revenue grew 42.8% YoY, the cost of sales increased by a lower 26.6%. This suggests an improved ability to satisfy direct costs and pricing pass-through to customers, aided by a more stable FX environment in the period. We project sales cost-to-revenue ratio to moderate to range of 59.6% – 62.1% in 2025F, from the 65.2% recorded in H1 2025. The forecast is contingent on sustained stability in exchange rate market, holding imported input costs steady.

This consistent cost pressure translated directly into margin contraction. As shown in Chart 6, the Company’s gross margin trended downward from 44.2% in 2020 to 34.8% in 2024. The multi-year compression reflects raw
material inflation and FX pass-through costs outpacing Nestlé’s operational efficiency gains.
The H1 2025 results, however, indicates a potential turning point, as margins stabilized amid accelerated revenue momentum. Gross margin recovered to 41.8% in H1 2025, a notable 740bps YoY expansion from 34.4%, reflecting a stronger ability to cover costs and improved pricing traction. We see the recovery as a key positive but note that sustainability will depend on FX stability and input cost trends. Accordingly, our 2025F gross margin forecast of 38.0%–40.4% adopts a more conservative stance.

Operating Leverage and Cost Discipline

A key strength in Nestlé Nigeria’s model has been its ability to exercise discipline over its operating expenses(OPEX), mitigating the gross margin pressure the company has been experiencing. From 2020 to 2024, OPEX (ex-depreciation) as a percentage of revenue trended downwards, falling 19.1% to 14.1%. The operating cost structure is dominated by few key line items: Freight, Consumer Promotional costs, and the General License fee.

However, the OPEX ratio inching up to 16.4% in H1 2025 (vs. 15.5% in H1 2024) is worth monitoring. We see this as manageable and not a material concern at current levels. Operational discipline was not evident in the EBITDA over 2020 – 2024 period, as the gross margin compression outweighed OPEX efficiency, driving the margin contraction from 25.1% in 2020 to 20.7% in 2024.

However, the H1 2025 results seem to signal a turnaround. EBITDA margin expanded sharply to 25.5%, a 660-basis point improvement from 18.9% in H1 2024. This suggests early signs of operating leverage gains and economies of scale from prior investments.We project FY 2025F EBITDA margin to be in a range of 22.0% – 24.3%. This reflects the H1 2025 momentum,while still taking note of the potential uptick in the OPEX ratio and the sustainability of this recent outperformance.

Active Deleveraging Amid a Strained Capital Structure

Nestlé Nigeria’s capital structure is heavily reliant on intercompany financing from its parent, Nestlé Switzerland(“Nestlé S.A.”). This relationship ensures access to capital but has also been the primary source of recent financial distress, particularly through FX-denominated obligations.

Since April 2020, Nestlé S.A. has extended US$380mn in cumulative intercompany loans, which have been fully drawn. As of FY 2024, the outstanding balance stood at US$425.64mn. These facilities are USD-denominated,creating a structural FX mismatch against Nestlé Nigeria’s Naira functional balance sheet. This structural exposure was the direct cause of substantial FX translation losses, which materialized during the acute Naira devaluations of 2023 and 2024. The resulting surge in finance costs drove consecutive net losses, eroded retained earnings, and pushed shareholders’ equity into negative territory.

However, part of the reported equity recovery is inorganic. The 2024 adoption of the revaluation model for PPE added an accounting surplus of N150.04bn (net of tax). Despite IFRS compliance, the gain is non-cash and does not strengthen cash flow or debt servicing capacity. The core challenge remains a leveraged balance sheet with negative underlying equity, dependence on parent company financing, and a large exposure to any FX volatility.

The sustainability of the recovery will depend on Naira stability and the company’s ability to generate consistently organic earnings.

Active Deleveraging Amid a Strained Capital Structure 2

The cumulative net profit of N70.2bn from Q4 2024 to H1 2025 has reduced balance sheet pressure, narrowing the negative equity position to N41.7bn in Q2 2025, from a trough of N112.1bn in Q3 2024. On this trajectory, we
project a return to a positive distributable equity position by Q1 2026.

In mitigating the balance sheet risk, Nestlé Nigeria has opted for early repayment of intercompany loans originally maturing from 2026 onwards. The Company repaid US$20m (32.97bn) in 2024 and a further US$20m (N30.91bn) in H1 2025, reducing FX exposure on the balance sheet. As expected, no new debt was received from Nestlé S.A. in
H1 2025, we do not anticipate additional intercompany borrowing in FY 2025F, barring significant improvement in free cash flow, particularly operating cash generation.

Cash Generation: Funding a Precarious Recovery

We define Free Cash Flow (FCF) as operating cash flow after deducting capital expenditures and working capital investment. This represents the discretionary cash available for capital returns and debt servicing. Nestlé
Nigeria’s FCF generation has historically been volatile, recording deficits in 2022 and 2024. These periods were weighed down by elevated capital expenditure and intensified working capital investment. That said, these
investments were targeted at capacity expansion so the firm could scale commercially, which we expect to drive
stronger operating cash flows in our forecast period (2025F – 2030F).

In H1 2025, free cash flow improved materially, supported by stronger earnings, and better working capital management. Net Operating Profit After-Tax (NOPAT) of N90.9bn (inflow), coupled with a N61.7bn working
capital (inflow) and moderated by CAPEX of N55.2bn (outflow), resulted in positive FCF of N115.6bn, compared to a negative N41.9bn in H1 2024.

Finance Costs: The Key Swing Factor in Earnings

Nestlé Nigeria’s earnings volatility has been caused primarily by financing costs, which pushed the company into net losses in2023 and 2024. The driver was largely the massive FX losses incurred on dollar-denominated debt, which ballooned fromN1.7bn in 2020 to N290bn in 2024. As a result, finance costs as a share of revenue spiked from 1.5% to an unsustainable 41.0% over the period, significantly weighing on core operating performance.

The trend shifted in H1 2025, as FX stability allowed the Company to post a net exchange gain of N3.1bn, compared to a loss of N263.7bn in H1 2024. This underscores both the extreme sensitivity of earnings to FX movements and Naira stability to the company’s profit trajectory. The turnaround is positive yet fragile, with finance costs shifting from a drag to a potential uplift. The ultimate outcome depends on stability in key macro variables.

Net Profit: Rebound Tempered by Structural FX Exposure

Prior to the currency devaluation in 2023, Nestlé Nigeria maintained a solid profitability track record, with a net margin of 11.0% in 2022, broadly in line with 5-year average of 13.6% (2018-2022). However, as detailed in prior sections, this deteriorated severely due to massive unrealized FX losses in dollar-denominated debt. This led to consecutive net losses of N79.5bn in 2023 and N164.6bn in 2024, translating to a significant loss per share ofN100.30 and N207.70, respectively.

This weighed on investor sentiment, with market capitalisation contracting by N499.4bn between 2020 and 2024.In H1 2025, Nestlé Nigeria swung back to profitability with N50.6bn in net profit, yielding an 8.7% margin on N581.2bn of revenue, reflecting both top-line momentum and FX stability. In the same period, market capitalisation rebounded strongly, rising by N804.62bn to N1.50trn, mirroring the return to profitability and investor’s re-pricing of their shares in the market.

Dividends: Suspended Until Distributable Equity is Restored

Nestlé Nigeria is 70.8% owned by Nestlé S.A., and dividend distributions remain the primary channel for profit repatriation to the parent. Prior to the accumulated losses of 2023 – 2024, the Company maintained a disciplined dividend policy, With earning Per Share (EPS) at a 5-year CAGR of 2.6% (2018 – 2022) and Dividend Per Share (DPS) tracking closely at 1.2% over the same period.The dividend of N36.50 per share declared for FY2023 (paid out of retained earnings despite a loss-making year) and subsequent complete pause in 2024 highlight the direct impact of the negative equity position on distribution capacity.

Valuation: Fair Value with Moderate Upside

Our valuation approach blends intrinsic and relative methods, with a 65% weighting to discounted cash flow(DCF) analysis and 35% to peer -derived multiples. This yields a blended target price of N2,063.15 per share.Implying an upside potential of 10.3% from the current price.

The weighting reflects both the assumptions embedded in our financial model and our fundamental assessment of the company. We rely primarily on DCF because regional peer multiples do not adequately capture Nestlé Nigeria’s unique characteristics. Within the DCF framework, Free Cash Flow to Firm (FCFF) carries greater weight at 35% than the Free Cash Flow to Equity (FCFE) at 30%. This reflects our conservative assumptions around potential debt inflows into company.

For the FCFF, enterprise value was derived from the present value of explicit cash flow projections (2025F –2030F) and the terminal value. The terminal growth rate assumption was benchmark to the five-year CAGR of there based Food, Beverage & Tobacco manufacturing segment in Nigeria’s GDP between 2020 and 2024.

For relative valuation, our comparable universe was based on a streamlined Bloomberg MEA peer, defined by a market capitalisation range of US$506.3mn to US$1.83bn, against Nestlé Nigeria which stands at US$976.99mn.

Relative valuation highlights a potential discount in market pricing. Nestlé Nigeria currently trades at an EV/EBITDA multiple of 4.0x, a material discount to the pear average of 7.2x. However, on a price-to-earnings basis, the stock trades at 10.8x, marginally above the peer average of 10.2x.Given the fair value yielding slightly above 10%, the year-to-date gain of 113.71% and the current price near its 52-week high, we recommend a HOLD rating. We will consider upgrading to a BUY if these critical catalyst exceed our outlook, particularly an accelerated reduction in FX exposure and stronger operating margins.

Key Risk: Foreign Exchange Volatility

Risks to our forecasts span several areas that could hinder Nestlé Nigeria’s ability to achieve its business objectives and projections outlined in this report. These broadly encompass macroeconomic, financial, and operational risks, with key areas including credit, liquidity and market risk.

Credit risk relates to the possibility that a counterparty may default on its obligations under a financial instrument or customer contract, resulting in financial loss. For Nestlé Nigeria, this risk primarily arises from trade receivables, deposits, and other financial instruments. As of FY 2024, the exposure was well-diversified with no significant concentration. The largest single customer accounted for N415.9mn of the total N15.3bn in loans &receivables, and N22.6bn in cash and short-term deposits.

Liquidity risk reflects the company’s ability to meet its financial obligations as they fall due. The largest portion of Nestlé Nigeria’s liabilities stems from unsecured intercompany loans, which were initially due within two to five years. As highlighted earlier, the company has proactively reduced this risk by initiating early repayments, retiring $40mn (N63.9bn) of this debt between 2024 and H1 2025. This helps moderate refinancing risk and signals acommitment to strengthen the balance sheet.

Credit and liquidity risks appear well-managed, our investment case remains heavily leveraged to a stable foreign change environment. However, Market Risk (FX Exposure) constitutes the most significant risk to our thesis.

Nestlé Nigeria’s financial performance is highly sensitive to fluctuations in foreign exchange rates, particular the USD/NGN pair, which impacts the cost of imported raw materials and valuations of its substantial dollar-denominated debt. Additionally, the company has minimal exposure to other currencies (EUR, CHF, SGD).

Importantly, the current operational rebound is directly contingent on the stability of the exchange rate. That said,any material devaluation of the Naira would adversely affect input costs, finance charges, and our earnings forecasts and target price. ARTICLE SOURCE: CORONATION ASSET MANAGEMENT LIMITED