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Home Opinions Blurb

Why ARM placed a sell recommendation on Nestle stock

Nairametrics by Nairametrics
February 27, 2015
in Blurb
Unimpressive? Nestle Posts N22.2billion PAT..Proposes Dividend Not Befitting of Its Valuation
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ARM in its review of Nestle’s 2014 Full year results recommended a sell for the company’s stock. Nestle released its 2014 full year results showing earnings remained flat year on year and revenue rising 7.7%. Here is an excerpt of their recommendation;

The slowdown in Nestlé’s revenue growth is consistent with our thesis about pressured consumer income underpinning top-line weakness across our coverage universe. Whilst Nestlé’s more defensively themed portfolio continues to sustain scope for positive revenue growth, further pressures in the domestic macro environment would result in a persistence in top-line slowdown over 2015.

Furthermore, management guidance about higher marketing expenses dampens optimism about pass-through to earnings from largely benign commodity price outlook. Although, Nestlé tried to reduce dollar loan exposure in response to prospect of weaker USDNGN, it is unlikely to sizably moderate the exposure over 2015 given historical attachment to dollar borrowings which opens another front for earnings weakness over 2015.

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Incorporating the foregoing in our models and raising our risk free rate to capture rising sovereign yields results a 21% moderation in our FVE to N622.8. Nestlé trades at current PE of 29.4x vs. 28.8x mean for Bloomberg Middle East and African peers with last trading price at 24% premium to our FVE which implies a SELL recommendation.

Get the full report here

 

 

 

 

Tags: Nestle
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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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