Coy: Nestle Nigeria Plc (NESTLE)
Rating: Hold
Current Market Price: N1,390
Year High: N1,600
Year Low: N1,306
Fair Value: N833.71
By: JeariogbeTundeSegun (Equity Analyst)
Key Investment Ratios
- This report on Nestle Foods Nigeria Plc observed the first quarter financial analysis for the period ended 31st March, 2019, compare same with corresponding quarter in 2018 to establish growth.
- Meanwhile, the full year financials for the year ended 31st December, 2018 metrics were used in the valuation analysis of Nestle foods shares.
- We have conservatively valued each units of Nestle Foods shares for N833.71, this is same as 40.02% below the current market price of Nestle Foods Plc shares on the floor of The Exchange.
- In our opinion, the consistence and increasing dividend return policy of the company had attracted high positive sentiments from the investing public, which is responsible for the over-valued state of its shares on the exchange
- We have also observed the low and stable shares outstanding of Nestle foods over the years, undoubtedly, this stands out as the major strength backing up its shares price and dividend payout.
- See below for comparison of released figures/our opinions
| NESTLE NIGERIA | |
| Bourse | Nigerian Stock Exchange |
| Code Name | NESTLE |
| Sector | CONSUMER GOODS |
| 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 | 31st December |
| Website | www.nestle-cwa.com |
| Registrar | GTL Registrars Limited |
| Auditor | Akintola Williams Deloitte |
| Share Price@Relsd (N) | 1,570.00 |
| Earnings per Share | 16.21 |
| Intrinsic Value(N) | 833.71 |
| Share Outstanding | 792,656,252 |
| Market Capitalisation | 1,244,470,315,640 |
Company figures
- Turnover figure posted for the period inched up above the corresponding period in 2018 by 5.19% having moved from N67.46 billion to N70.96 billion
- Cost of Sales stood at N39.49 billion shifting down by 5.29% from the N41.70 billion posted in similar period of 2018
- Meanwhile, Operating Profit is estimated at N19.08 billion as against the N14.51 billion achieved in 2018 financials
- Operating Expenses stood above 2018’s by 10.17% having moved from N11.23 billion to the current N12.38 billion
- Finance Cost dropped appreciably by 59.53% from the N1.15 billion spent in 2018 first quarter to N469.35 million in 2019
- Thus, Net Finance Income turned positive N35.65 million compared to the Negative N878.59 million posted in 2018
- Profit before Tax appreciated by 40.18% to stand at N19.12 billion compared to N13.64 billion in 2018
- Profit for the Period stood of 2018 first quarter earnings by 49.27% from N8.60 billion to N12.84 billion in the current quarter
| Statement of Comprehensive Income | |||
| 2019(000) | 2018(000) | %CHG | |
| Turnover | 70,966,754 | 67,463,648 | 5.19 |
| Cost of Sales | 39,497,884 | 41,705,831 | 5.29 |
| Operating Profit | 19,086,552 | 14,519,016 | 31.46 |
| OPEX | 12,382,318 | 11,238,801 | 10.17 |
| DEPRECIATION | 1,694,779 | 1,705,637 | 0.64 |
| FINANCE COST | 469,353 | 1,159,890 | 59.53 |
| NET FINANCE INCOME | 35,650 | (878,591) | 104.06 |
| PBT | 19,121,202 | 13,640,425 | 40.18 |
| TAX | 6,274,881 | 5,034,544 | 24.64 |
| PAT | 12,846,321 | 8,605,881 | 49.27 |
| TOTAL COMP INCOME | 12,846,321 | 8,605,881 | 49.27 |
| Statement of Financial Position | |||
| Current Assets | 98,681,908 | 121,461,153 | 18.75 |
| Non-Current Assets | 78,788,296 | 71,332,002 | 10.45 |
| Total Assets | 177,470,204 | 192,793,155 | 7.95 |
| Current Liabilities | 94,105,478 | 131,440,574 | 28.40 |
| Non-Current Liabilities | 20,406,954 | 22,160,070 | 7.91 |
| Total Liabilities | 114,512,432 | 153,600,644 | 25.45 |
| Net Assets | 62,957,772 | 39,192,511 | 60.64 |
| Retained Earnings | 62,483,429 | 52,925,385 | 18.06 |
| Shares Outstanding | 792,656,252 | 792,656,252 | |
- Current Assets dipped by 18.75%, as it is currently valued at N98.68 billion as against the previous N121.46 billion
- Non Current Assets on the other hand increased over corresponding quarter to stand at N78.78 billion against N71.33 billion
- Current Liabilities dipped to N99.10 billion as against the corresponding N131.44 billion
- Non Current Liabilities equally dipped to by 7.91% from N22.16 billion to N20.40 billion
- Net Assets enjoyed the boost from the reduced liabilities as it is currently valued at N62.95 billion, this is same as 60.64% over the N39.19 billion achieved at the end of 2018 first quarter
- Retained earnings therefore builds up by 18.06% to stand at N62.48 billion compared to N52.92 billion in 2018
Financial Strength/Solvency Ratios
- Debt Ratio is currently estimated at 0.65x lower than the 0.80x estimated from 2018 first quarter financials.
- Total Debt to Equity is estimated at 1.82x as down from the 3.92x estimated in the comparable quarter. This is quite impressive
- We also tested the Equity Ratio, and established that Equity is same as 35% of the Total Assets Value stated at the end of the quarter, this is above the 20% ratio estimated from 2018 financial indices
- Beta Value at the time of this report stood below unity at 0.83x, below the industrial average of 0.88x. And also below the market beta.
| Financial Strength/Solvency Ratio | |||
| TICKERS | 2019 | 2018 | %CHG |
| Debt Ratio | 0.65 | 0.80 | 19.01 |
| Total Debt to Equity Ratio (MRQ) | 1.82 | 3.92 | 53.59 |
| Equity Ratio | 0.35 | 0.20 | 74.51 |
| TICKERS | 2019 | Industrial Average | %CHG |
| Beta Value | 0.83 | 1.00 | 17.00 |
Profitability Ratios
- EBITDA margin estimated for the period stood at 26.90%, 24.97% above the 21.52% estimated from the corresponding quarters’ numbers
- Pre-Tax Margin appreciated by 33.26% to 26.94% against the 20.22% estimated at the end of 2018 first quarter
- Effective Tax Rate adjusted down by 16.50% to 48.85% against 58.50% of 2018 first quarter
- Cost of Sales figure posted at the end of the quarter is same as 55.66% of the Turnover figure, this shows a downward marginal adjustment of 9.97% from the previous estimate of 61.82%
- Return on Equity stood at 20.40% against the 21.96% of 2018 first quarter
| PROFITABILITY RATIOS | |||
| TICKERS | 2019 | 2018 | %CHG |
| EBITDA MARGIN | 26.90% | 21.52% | 24.97 |
| PRE-TAX MARGIN | 26.94% | 20.22% | 33.26 |
| EFFECTIVE TAX RATE | 48.85% | 58.50% | 16.50 |
| CS TO TO | 55.66% | 61.82% | 9.97 |
| ROE | 20.40% | 21.96% | 7.07 |
| ROA | 7.24% | 4.46% | 62.16 |
Efficiency Ratios
- Operating Expenses to Turnover value is same as 17.45%, this is 4.74% growth over the 16.66% estimated from 2018 first quarter financials
- Turnover to Total Assets Ratios stood at 39.99% against 34.99%, this is 14.28% improvement in efficiency over comparable period of 2018
- Working Capital Ratio, a ratio that indicates a company’s effectiveness in using its working capital was estimated at 15.51x against the negative 6.76x that was estimated in similar period of 2018.
- Further testing the company efficiency, we checked the Working Capital Ratio, which confirmed that Current Assets is slightly higher than current liabilities as against the droping status in the corresponding quarter.
| EFFICIENCY RATIOS | |||
| 2019 | 2018 | ||
| OPEX TO TO | 17.45% | 16.66% | 4.74 |
| TO TO TA | 39.99% | 34.99% | 14.28 |
| Working Capital Turnover | 15.51 | (6.76) | 329.38 |
| Working Capital Ratio | 1.05 | 0.92 | 13.48 |
Investment/Valuation Ratios
- At the end of the first three months of 2019, the management achieved earnings per share improvement to the tune of 49.27% from the previously estimated N10.86 to N16.21
- P/E-Ratio slipped by 33.01% having moved to 96.87x from 144.61x, please understand that the reduction in this ratio is an indication that price did not follow same momentum as growth in earnings per share. Meanwhile the high P/E is a reflection of investors’ confidence in the shares of Nestle Foods Plc.
- The said Earnings per Share is a 1.03% yield of the current market price of Nestle Foods Plc’s shares on the floor of the exchange as at the time the result was made available to the investing public
- We have estimated the Book Value of Nestle Foods Plc shares at N79.43 against the previous estimate of N49.44. This is another pointer to investors’ high sentiments/confidence in the shares of Nestle Foods
- Confirming and over-priced position is the Price to Book Value Ratio that is currently estimated below unity at 19.77x
| Investment/Valuation Ratios | |||
| Tickers | 2019 | 2018 | %Chg |
| Price at Released | 1570.00 | 1570.00 | 0.00 |
| EPS | 16.21 | 10.86 | 49.27 |
| TCIP/SHARE | 16.21 | 10.86 | 49.27 |
| P/E-Ratio | 96.87 | 144.61 | 33.01 |
| Earnings Yield | 1.03% | 0.69% | 49.27 |
| BV/Share | 79.43 | 49.44 | 60.64 |
| PBV | 19.77 | 31.75 | 37.75 |
| CAPEX/SHARE | 97.34 | 79.43 | 22.55 |
Valuation
Having observed the books of Nestle Foods Plc, we took into consideration the consistent and growing in the company’s reward to the investors, our blend of valuation tools fairly placed each unit of Nestle Foods shares at N833.71. Meanwhile, considering the fact that the company had enjoyed higher valuation over the years, we Rated the shares a HOLD.
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