Buy/Sell/Hold: Nestle Plc

Nestlé Nigeria - Contraction in Food Giant’s Revenue Insider Dealing: Nestle S.A Increases Stakes in Nestle Nigeria

Nestle Plc is one of the country’s major Fast Moving Consumer Goods (FMCG) companies. The Company has had a swell year on the Nigerian Stock Exchange, returning 49% year to date, out performing several of its peers in terms of price appreciation. Cadbury Nigeria, its closest competitor in the FCMG space, is currently trading at N11 per share, up 6.9% despite its recent string of negative results.

Using the price to earnings ratio, Nestle appears to be over valued. FY 2016 results show Nestle had an Earnings per Share of N10, meaning it is currently trading at over a 100 times earnings. Other companies in the same sector are currently trading for far less. Half Year 2017 results show Nestle has an Earnings Per Share of N20.22 indicating the company could have a Full Year Earnings Per Share of overN30. That would still leave the stock over valued at 30 times earnings.

Nestle has often traded at a premium as the stock is a favourite of foreign investors, Pension Fund Administrators (PFAs) and other institutional investors due to its solid record of dividend payment. Foreign investors have had bullish sentiments towards the stock market due to the Investor and Exporters window which has made free flow of FX easier. Depreciation of the Naira against the dollar has also made Nigerian stocks cheaper in dollar terms.

The company has a thin float since 65.74% of its shares are held by Nestle SA of Switzerland and 7.34% is held by Stanbic Nominees. Nestle also has a relatively small number of shares outstanding at 792,656,200 shares. The company also has a price to book value ratio of over 1, indicating the stock is currently over-valued.
The current valuation, and limited room for upside make Nestle Plc a HOLD.

Nestle Nigeria Plc began operations in 1961, and was listed on the Nigerian Stock Exchange on April 20, 1979. The company produces a wide range of goods including cereals, condiments and water.