Nestle Nigeria Plc
Nestlé Nigeria Plc 9 months Income Statement for the Period Ended 30 September 2008
2008 (N'b) 2007 (N'b) Growth (%)
Turnover 37.736 31.294 20.59
PBT 8.097 7.166 12.99
PAT 5.494 4.882 12.54
Nestlé Plc is one of the prestigious stocks on the NSE, a high dividend paying company, listed under the Foods and Beverages Sector.
The company released its nine months results for the period ended 30 September 2008 on the floor of the NSE last week. They were able to grow turnover by 20.59% from N31.294 billion to N37.736 billion; profit before tax and exceptional and extraordinary items grew by 12.99% from N7.166 billion to N8.097 billion while after tax profits increased from N4.882 billion to N5.494 billion indicating a 12.54% rise. The results show that there was an increase in expenses over that of 2007; the reason should be evident in their annual report.
A look at the balance sheet showed that net assets grew by 9.75% from N6.597 billion to N7.240 billion over the financial period under review. The return on equity improved from 0.74 to 0.76. The debt to equity ratio increased from 1.07 to 1.71, which means that Nestlé’s financial risk exposure has increased and it will be astute of them to take proactive steps to arrest the situation.
The earning per share based on the results comes to N8.31, which signifies a growth of 0.1% over that of 2007 full year and they could be on the way of hitting N11.08 by the end of the year. The company has proposed an interim dividend of N1.95 per share, which means that the company is going to have a retention rate of 76.53%. This could be a right step in the direction of improving overhead costs and tackling the increased liability burden. Nestlé presently has a sustainable growth rate of 58.16%. The cost of maintaining equity in the company could not be positively ascertained because of the unusual low level of dividend payout ratio. It should be noted that this company has on the average over the past five years paid out 89% of its earnings as dividends. The last dividend for 2007 was 2.3% higher than the earnings for the same year, which means that they were able to dip into their reserves to pay shareholders. This means that shareholders should not expect anything less than N9.86 as dividends at the end of the year. That dividend is more expensive than most penny stocks on the NSE…
The profitability of Nestlé is not in doubt but their performance is not impressive. It may be too soon to arrive at conclusions at the moment as they may be in the process of rebalancing their assets for potential massive sales from the upcoming festivities. This may as well explain the reason why cash increased from N1.148 billion to N5.423 billion and short term borrowings increased from N0.285 billion to N1.171 billion.
At the current price of N201.51, the forward price earning multiple comes to 17.06x. The book value per share is 10.95 giving a price to book value of 18.58x. The relatively poor book value can be attributed to the increased liabilities the company accrued over the period under review or the process of rebalancing, which was conjectured earlier. Therefore, it will not be a good input into the calculation of the fair value of the company.
The price earning model reveals a value of N236.24 while the dividend yield model generates a price of N236.20. The average of the two figures, which are quite close, gives an intrinsic value of N236.22.
Well, Nestlé presently has an upside potential of 14.69% and it is quite interesting to note that a company that has reached the stage of capital preservation could also generate such capital appreciation. This company has generated a lot of value for shareholders over the years, meaning that it has sound historical fundamentals and a good management.