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Analysts place sell order on Nestle’s shares

By on October 16, 2014

Analysts at FSDH Securities Limited have stated that the  current market price of Nestle Nigeria Plc is highly overvalued stressing that the fair value for Nestle is N660.84 per share.  They have thereof put a sell order on the stock.
Nestle closed at N1,000 per share yesterday, indicating an premium of 33 per cent  on the  N660.84 valuation given by the analysts.
Half year results released by Nestle recently showed that its turnover increased by 7.62 per cent to N67.20 billion, compared with N62.45 billion recorded in the corresponding period of 2013.
The increase in turnover experts said was due to the improvement in the Nestlé’s distribution network which boosted products sold.
Also, its profit before tax (PBT) increased by 5.41 per cent to N13.93 billion from N13.22 billion recorded in the corresponding period of 2013.
The significant decrease of 33.31 per cent recorded in its finance cost of N871million in the second quarter, 2014 from N1.31 billion in 2013 contributed to the increase recorded in the PBT.
The company’s tax provision increased by 2.45 per cent to N2.10 billion from N2.05 billion in 2013, leading to a profit after tax (PAT) of N11.84 billion in quarter two, 2014 from N11.17 billion in the corresponding period of 2013, representing a growth of 5.95 per cent.
According to FSDH, “Nestlé Nigeria Plc’s performance during the period was driven by the following factors:  diversified product portfolio, which is essential for healthy living, its backward integration strategy to secure raw materials locally by partnering with farmers to provide quality raw materials.
“Others are: strategic partnership with its distributors to boost sales, investments in its plants upgrade to produce products more efficiently, the drop in interest expenses. However, the security challenges in the North East of Nigeria adversely affected sales. To further reduce its environmental footprint and ensure efficient use of energy for manufacturing operation, Nestle has built a tri-generation power plant at its Agbara factory.
“The plant generates electrical power, while chilled and hot water are generated using heat from the power plant exhaust gases. This enables the company to increase overall energy efficiency from 42 per cent to 74 per cent and to reduce carbon dioxide emissions by 5,000 tonnes per year.  We considered the following factors in arriving at our five -year forecasts:  Large and growing market in Nigeria, the competitive position of the company in the industry.”

 

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