Nestlé Nigeria’s performance in Q1 2025 marks a sharp pivot from last year’s financial struggles, posting a profit before tax of ₦51.15 billion compared to a pre-tax loss of ₦196.09 billion in Q1 2024. Net profit came in at ₦30.18 billion, rebounding from a staggering ₦142.68 billion loss in the prior period—despite a high effective tax rate of 41.0%.
Key Highlights Driving the Rebound
🔹 Cost Optimization Masterclass Nestlé’s cost-to-sales ratio dropped by 13.86 percentage points to 59.4%, down from 73.3% in Q1 2024. This was achieved through enhanced energy efficiency and a strategic shift towards local sourcing, reducing reliance on costlier imported raw materials.
🔹 Improving Margin Outlook Analysts at Cordros Capital project a 505 bps increase in gross margin and a 656 bps jump in EBITDA margin in 2025, expected to land at 37.0% and 27.1% respectively. This signals a strong operational recovery fueled by price increases, volume growth, and cost control.
🔹 Revised Target Price Already Surpassed Nestlé Nigeria’s stock has outpaced earlier projections, prompting analysts to revise their target price to ₦1,319.08, up from ₦930.10. However, due to valuation concerns amid rapid market gains, the recommendation remains “HOLD”.
Outlook: Recovery in Motion but Patience Required
🔸 Balance Sheet Reversal in Sight From a negative equity position of ₦92.29 billion in 2024, Nestlé Nigeria is forecasted to swing back to positive equity of ₦37.07 billion in 2025. The expected ₦129.36 billion net profit will significantly reduce its accumulated deficit.
🔸 No Dividends in 2025 Despite the profit turnaround, dividend payments are off the table in 2025 due to the lingering negative retained earnings. Analysts foresee dividend resumption in 2026, once retained earnings turn positive (projected at ₦19.26 billion).
🔸 FX Losses to Moderate Though still expected to incur some foreign exchange losses, these are likely to be more manageable in 2025, unlike the debilitating impact seen in the prior year.
Final Take: A Classic Case of “Fixing the House First”
Nestlé Nigeria’s Q1 2025 is not just a turnaround—it’s a statement. Management has delivered decisive action on costs, restored profitability, and set the stage for full-year recovery. While the absence of dividends and a high share price might cool enthusiasm for some investors, the fundamental recovery narrative is compelling.
For long-term investors, this is a story still in its early innings. For short-term holders, the current price may already reflect much of the good news. Either way, Nestlé Nigeria is back on the radar—and for good reason.
How well do narratives help inform your perspective?
Disclaimer
The user WaneInvestmentHouse holds no position in NGSE:NESTLE. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.