By Bamidele Famoofo
Summary
Nestlé Nigeria Plc, one of Africa’s largest food and beverage companies, delivered a strong earnings performance driven by revenue growth in first quarter of 2026.
The unaudited financial report of Nestle made available to stakeholders on the Nigerian Exchange Limited, showed that revenue growth stood at 10.6 percent year-on-year alongside a sharp decline in net finance costs of (92.8%). The sharp decline in net finance costs was underpinned by FX gains (NGN14.76 billion) on FCY-denominated balances.
Analyst’s valuation of the stock reflects improving earnings visibility, margin expansion, and the anticipated resumption of dividends, albeit against a backdrop of sustained marketing intensity (13.4%) and elevated near-term CAPEX requirements.
NESTLE currently trades at a 2026E P/E and EV/EBITDA of 12.1x and 7.9x vs. MEA peer median of 18.6x and 9.6x, respectively.
A revenue growth of 9.3 percent y/y is however projected for 2026E, driven by modest volume expansion across Food (+ 8.6% y/y) and Beverages (+ 10.4 % y/y). Growth in the Beverages segment is expected to be driven by a continued shift toward single -serve formats, aimed at enhancing affordability amid constrained consumer demand. This format shift should sustain high marketing intensity at 13.4 percent of revenue (2025: 13.4%), complemented by selective price moderation to support volumes and protect market share.
Profitability margins are expected to expand, with gross and EBITDA margins projected to rise by 44 4bps y/y and 485 bps y/y to 40 .5 percent and 26. 7 percent respectively, supported by localisation gains (c.65.0% local sourcing) and a more stable FX environment. Additionally, an 85.0 percent y/y decline in finance costs is projected for the stock. Overall, it is projected that Nestle will deliver Earnings per Share (EPS) growth of 93 .0 percent y/y to NGN256.15 (2025: NGN132.42).
Earnings recovery enables full dividend resumption:
Management reiterated its priority to exit negative retained earnings in 2026E, supported by a gross margin target of 38.0 – 40.0 percent despite expectations of single -digit revenue growth. Retained earnings is projected to recover to NGN 48 .9 9 billion (from a retained loss of NGN112.78 billion in 2025A), enabling the resumption of dividend payments. Hence, we an interim dividend of NGN 52 .06 /share and a final dividend of NGN 76 .01/share in 2026E are possibilities for the shareholders of the company. This implies a total dividend of NGN 128.07 /share (50.0% payout ratio; 4 .1% yield at current price). Beyond 2026E, strong free cash flow generation (2026 E –2030E FCF CAGR: + 14 .1%) should support a more sustainable dividend profile, with average payout and yield projected at 77 .0 percent and 9. 2 percent, respectively, alongside continued balance sheet de -risking (2026E: NGN62.39 billion | 2025A: NGN61.82 billion).
Valuation:
Analyst’s target price for the stock is NGN 3,199 .47 per share. This according to stock market Analysts at Cordros Capital, was derived from an equal blend of DCF and sector relative valuation approach (P/E & EV/EBITDA). “Our DCF FV is derived from a n equal blend of FCFF (NGN 2,22 7.36 /s) and FCFE (NGN 1,9 20 .76 /s), assuming a 20 .6 % WACC and a 4.0% terminal growth rate. Similarly, our multiple based FV was derived from a blend of EV/EBITDA (NGN 3,896 .43 /s) and P/E (NGN 4 ,753 .32 /s) multiples, utilising Bloomberg’s Middle East and African peer median for both factors (9. 6 x and 18.6 x, respectively) as multipliers,” Cordros disclosed in a report.
2026 Key Estimates
Revenue is expected to be primarily volume driven amid limited room for upward price adjustments. At the segment level, Food (+8. 6 % y/y) —comprising seasonings (Maggi), family cereals (Golden Morn), and infant nutrition (Cerelac) are expected to largely drive revenue.
Analysts expect Maggi to continue to anchor growth in 2026, while Golden Morn and infant nutrition segment (Cerelac) will likely lag, reflecting still fragile consumer demand. It is noted that within the family nutrition category, Golden Morn faces weaker pricing edge and higher substitution risk, where demand remains more sensitive to income pressures, constraining volume recovery.
Additionally, recent negative sentiment around Cerelac formulations —particularly concerns over sugar content in certain African variants —could weigh on near -term volume recovery for infant nutrition business.
Importantly, this appears perception -driven rather than regulatory, with the company disputing the claims and reiterating compliance with applicable standards. Nonetheless, the concern has likely softened demand at the margin, necessitating gradual repositioning, potential reformulation, and sustained marketing support to rebuild consumer confidence.
Price adjustments and targeted promotions will also be deployed at intervals, mainly to protect market share. Given these dynamics, we expect Food’s contribution to taper by 38bps to 6 4 .5 percent in 2026E, with a focus on defending and gradually recapturing market share. Nonetheless, the segment remains the core of NESTLE’s portfolio, serving as a defensive earnings anchor, underpinned by deep market penetration and strong brand entrenchment of Maggi within the culinary segment.
In Beverages (+ 10.4% y/y), contribution is expected to increase by 38bps to 35.0 percent, growth is expected to be moderate and volume -led, driven primarily by resilient demand for Milo and a continued shift toward single – serve (affordable) formats to improve accessibility and consumption frequency.
While Nescafé should deliver modest growth, supported by targeted brand and distribution initiatives, the segment remains margin sensitive, reflecting elevated exposure to input cost volatility (cocoa, coffee, FX) and higher unit packaging and distribution costs from smaller pack formats.
Gross margin is projected to expand to 40.5 percent in 2026E (2026 E -2030E average: 4 1.5%) supported by localization gains, ongoing direct cost optimization, a more stable FX backdrop, and a supportive regulatory backdrop. NESTLE continues to deepen localization strategy, expanding the use of locally available inputs such as salt, sugar, soya bean, and corn starch, as well as packaging components (laminates, corrugated cases, resins, and monofilms) across its product portfolio. Notably, the company already sources 65.0 – 80.0 percent of its raw materials and packaging components locally as of 2025FY, effectively reinforcing our constructive margin outlook for 2026E. Accordingly, EBITDA margin is expected to improve to 26. 7 percent in 2026E (2026 E –2030E: 28.6%), reflecting benefits from localization and sourcing efficiencies. However, part of these gains is offset by elevated energy costs and sustained brand investment, with marketing spend projected to rise by 9.3 percent y/y. On the policy front, recent fiscal measures reduced tariffs on crude palm oil to 28. 8 percent (from 35 .0 %) and raw sugar to c. 55 .0 –57.5 percent (from 70 .0 %), offering incremental relief on imported inputs. Combined with ongoing localization efforts, FX stability and the potential for modest currency appreciation, we believe NESTLE is well positioned to unlock further supply chain efficiencies and maximise the benefits of local sourcing over the near term.
Expansionary capex amid ongoing deleveraging efforts
Free cash flow (FCF) is expected to remain robust at NGN1 88 .57 billion in 2026E (2025: NGN251.3 9 billion), underpinned by strong operating cash flow (NGN 240 .47 billion) and a sharp reversal in working capital dynamics (NGN 12.14 billion inflows vs. NGN 83 .76 billion outflows in 2025), reflecting early gains from procurement and trade term normalisation. This improvement is driven by better inventory efficiency (70 days vs. 85 days) and a normalisation in payables (11 8 days vs. 128 days), alongside a modest build -up in receivables (12 days vs. 7 days) consistent with recovering volumes. Despite sustained capex commitments (2026E: NGN 51.90 billion|2026 E -2030E average: NGN55.52 billion | 2021 -2025 average: NGN58.87billion), FCF remains sufficient to support ongoing deleveraging, with debt repayments projected to increase to NGN6 2.39 billion in 2026E (202 5FY: NGN61 .82 billion). This is broadly aligned with management’s stated target to repay at least USD40.0 million (c. NGN57.43 billion) in 2026E, suggesting some upside to guidance, supported by strong internally generated cash flows. This should drive an improvement in leverage metrics, with net debt/EBITDA projected to decline to ~ 0 .90 x (2025: 1.67x) and interest coverage expected to strengthen to c. 6 .13x (2025: 2.23x), while the debt -to- capital ratio moderates to c. 0. 73 x (2025: 0.97x).
