Nestle Nigeria Plc: Time To Retool For Revenue, Profit, Returns Growth
Current Market Price: N1,450
Year High: N1,469
Year Low: N764.90
Fair Value: N800.84
Equity Analyst: Tunde Segun Jeariogbe
Key Investment Ratios
- This report on Nestle Nigeria Plc is based on its financials for the third quarter ended 30th September, 2020, compared same with that of the corresponding quarter in 2019 to establish growth.
- Meanwhile, the full-year financials metrics were used in the valuation analysis of the shares, followed with appropriate projections.
- We have conservatively valued each unit of the company’s shares at N800.84, which is below its current market price on The Nigerian Stock Exchange, as at the time this report was compiled.
- In our opinion, the company’s consistency and increasing dividend return policy has attracted high positive sentiments from investors, which accounts for the over-valued state of its shares.
- We have also observed the low and stable shares outstanding over the years, undoubtedly, this stands out as the major strength now supporting its shares price and dividend payout till date.
- See below for comparison of released figures/our opinions.
|Bourse||Nigerian Stock Exchange|
|Market Classification||MAIN BOARD|
|Nature of Business||Manufacturing, Marketing and Distribution of food Products.|
|Date of Incorporation||September 25th 1969|
|Date Listed||April 20th 1979|
|End of Accounting Year||December 31st|
|Registrar||GTL Registrars Limited|
|Auditor||Akintola Williams Deloitte|
|Share Price@Relsd (N)||1,175.00|
|Earnings per Share||40.29|
- At the end of the nine-month session, the board of Nestle Nigeria offered N25.00 interim cash dividend per share, same as was paid in the corresponding quarter of 2019.
- The said dividend is 62.05% of the total earnings at the end of the quarter, meaning that the company retained 47.95% of its earnings at the end of the quarter.
- Thus, the sustainable growth rate is 28.99%, as against 30.13% in the corresponding quarter.
- Please note that the N25.00 dividend represents a 2.13% yield of the price of Nestle Nigeria shares on the exchange as of the time the result was made available.
- According to the numbers released through the exchange, the closure date for the said dividend is 23rd – 27th November, 2020, qualification date is 20th November, while the payment is scheduled for 7th December, 2020.
|Latest Final Dividend||25.00||25.00||0.00|
|Sustainable Growth Rate||28.99%||30.13%||-3.77|
- Turnover during the period inched above that of the 2019 corresponding period by 0.66%, from N211.34 billion to N212.73 billion.
- Cost of Sales stood at N122.70 billion, improving by 6.67% from the N115.03 billion posted in similar period of 2019.
- Meanwhile, Operating Profit is estimated at N50.18 billion, up from the N57.04 billion achieved in 2019 financials.
- Operating Expenses stood above 2019 estimate by marginal 1.47%, moving from N39.26 billion to the current N39.83 billion.
- Finance Cost grew marginally by 3.35% from the N1.57 billion of the 2019 third quarter to N1.62 billion in 2020.
- Thus, Net Finance Income remained negative at N923.65 million, compared to the N496.24 million posted in 2019.
- Profit before Tax dipped by 12.89% to N49.26 billion, as against the N56.55 billion of 2019.
- After taking care of Tax Expenses for the nine-month, the management of Nestle reported N31.92 billion as profit for the quarter as against N36.84 billion in the corresponding quarter.
|Statement of Comprehensive Income|
|Cost of Sales||122,707||115,034||6.67|
|NET FINANCE INCOME||(923)||(496)||86.13|
|TOTAL COMP INCOME||31,937||36,841||-13.31|
|Statement of Financial Position|
- Current Assets improved by 28.60%, to N130.18 billion as against the previous N101.23 billion.
- Similarly, Non-Current Assets increased over that of the corresponding quarter to N87.35 billion, up from N79.89 billion.
- Current Liabilities improved to N140.30 billion, as against the corresponding N104.23 billion.
- Non-Current Liabilities equally grew to by 73.82% from N20.38 billion to N35.42 billion.
- Net Assets for the period was estimated at N41.81 billion as against N56.51 billion in the corresponding period.
- Retained earnings dropped by 26.23% to N41.29 billion, versus N55.98 billion in the corresponding period of 2019.
Financial Strength/Solvency Ratios
- Debt Ratio is currently estimated at 80.78%, as against 68.80% in the corresponding period of prior year.
- Total Debt for the period is estimated as 420.28% of the Equity Value at the end of the period. Meaning that more debt was used in servicing assets through the nine months business session.
- We also tested the Equity Ratio, and established that Equity is same as 19.22% of the Total Assets Value stated at the end of the quarter, this is below the 31.20% ratio estimated from 2019 financial indices.
- Beta Value at the time of this report stood below unity at 0.50x, below the industrial average of 0.88x. And stood below the market beta.
|Financial Strength/Solvency Ratio|
|Total Debt to Equity Ratio (MRQ)||420.28%||220.52%||90.59|
|Beta Value||0.50||0.88 0.75||-33.33|
- EBITDA margin estimated for the period stood at 23.59%, same as 12.61% below the 26.99% estimated from the corresponding quarters’ numbers.
- Pre-Tax Margin dropped by 13.46% to 23.16% against the 26.76% estimated at the end of 2019 third quarter.
- Effective Tax Rate was stable through the compared periods as shown in the table below.
- Cost of Sales at the end of the quarter is same as 57.68% of the Turnover figure, which shows an upward marginal adjustment of 5.98% from the previous estimate of 54.43%.
- Return on Equity is outstanding at 76.38%, against the 65.19% posted at the end of 2019 third quarter operations. Note also that this is the dividend of positive use of the high debt used through the period.
|EFFECTIVE TAX RATE||54.24%||53.51%||1.38|
|CS to TO||57.68%||54.43%||5.98|
- Operating Expenses to Turnover value is same as 18.73%, 0.81% growth over the 18.58% estimated from 2019 third quarter financials.
- Turnover to Total Assets Ratios stood at 97.79% against 116.68%, this is 16.19% drop in efficiency over comparable period of 2019
- Working Capital Ratio, a ratio that indicates a company’s effectiveness in using its working capital was estimated at 21.02x against the 70.36x that was estimated in similar period of 2019.
|OPEX to TO||18.73%||18.58%||0.81|
|TO to TA||97.79%||116.68%||-16.19|
|Working Capital Turnover||(21.02)||(70.36)||-70.12|
|Working Capital Ratio||0.93||0.97||-4.46|
- At the end of the first nine months of 2020, earnings per share dropped by 13.31% from the previously estimated N46.48 to N40.29 each.
- P/E-Ratio improved by 11.10% having moved to 29.16x from 26.25x. It noteworthy that the high P/E is a reflection of investors’ confidence in the shares of Nestle Foods Plc.
- The said Earnings per Share is a 3.43% yield of the current market price of Nestle Foods Plc’s shares on the exchange as at the time the result was made available to investors.
- We have estimated the Book Value of Nestle Nigeria shares at N52.75, down from the previous N71.20 estimate, another pointer to investors’ high sentiments/confidence in the shares of Nestle Nigeria.
- Confirming the over-priced position is the Price to Book Value Ratio that is currently estimated below unity at 22.28x.
|Price at Released||1175.00||1220.00||-3.69|
Having observed the books of Nestle Foods Plc, we took into consideration the consistent and growth in the company’s reward to the investors, our blend of valuation tools fairly placed each unit of Nestle Foods shares at N800.84. Meanwhile, considering the fact that the company had enjoyed higher valuation over the years, we have Rated the shares a HOLD.