With a five-year net income CAGR of 7.7%, NESTLE appears resilient amidst macroeconomic volatilities. We like the diversity of its product mix and aggressive advertising via online channels & flagship campaigns like the Maggi O Setigo Cooking Show and the Golden Morn heritage Campaign that have partly supported volume growth. Similarly, the company's ability to raise product prices in response to rising input costs has also boded well for its revenue. Our retail product price survey revealed that between August 2022 and February 2023, the company raised prices across its major product lines by an average of 17.0%. We note that the sustained price increases and strong volumes were responsible for the 27.0% and 25.6% revenue growths in FY'22 and Q4'22, respectively, that masked production and finance cost pressures.

We expect NESTLE's FY'23 bottom line to increase by 6.7%, boosted by sustained positive passthrough from higher sales (+12.2% YoY). Despite the naira scarcity-induced volume weakness that may be faced in Q1'23, NESTLE's strong distribution network (over 191 major outlets across Nigeria), leadership in seasoning and cereal segments, increased product prices, and the reintroduction of old naira notes suggest a material rebound may be in the offing beyond Q1'23.

Notwithstanding, domestic raw material costs will likely remain flat-to- rising in 2023, despite broad expectations for commodity price moderation globally. According to FEWS Net, prices of agricultural commodities could remain high due to inflationary market pressures and a continued rise in transportation costs. Also, our market analysis revealed that domestic maize and sorghum prices have remained sticky since the start of the year. We, therefore, expect the company's gross margin to remain flat in FY'23.