Nestle Nigeria Plc, last Friday released its financial statements for its 2017 financial year. Revenue increased massively from N181 billion in 2016 to N244 billion in 2017. Profit before tax increased from N21.5 billion in 2016 to N46.8 billion in 2017. Profit after tax had a quantum leap from N7.9 billion in 2016 to N33.7 billion, the highest in the company’s history.
Efficient cost control
Nestle was able to manage its finance cost creditably, as finance cost reduced from N16.6 billion in 2016 to N8.8 billion in 2017.
Export revenue increased massively
Export revenue increased by nearly a billion from N1.9 billion in 2016 to N3 billion in 2017. Revenue from Ghana more than doubled from N974 million in 2016 to N2.6 billion in 2017. Revenue from Nigeria also doubled from N62 million in 2016 to N132 million in 2017. Revenue from other segments, however, fell from N274 million in 2016 to N244 million in 2017.
Bumper returns for investors
Investors have a lot to cheer about as the company has declared a final dividend of N27.50 (a 175% leap from the N10.00 paid in 2016). Nestle had earlier paid an interim dividend of N15 per share (comprising N13 from pioneer profits and N2 from its retained earnings).
Total dividend for the 2017 financial year, comes to N42.50, or a payout ratio of 99.8%.
Buy/Sell/Hold?
Nestle Nigeria Plc has an earnings yield of 3.03% based on its current share price of N1400 and earnings per share of N42.55. It also has a dividend yield of 3.03%.
The stock is also trading at 30 times earnings, making it overpriced. Nestle, traditionally trades at a premium, due to its blue-chip nature, and being a favourite of foreign investors. The stock also has a thin float since 66.18% of the 792 million shares in issue are held by Nestle S.A. Switzerland.
Year to date, the stock has depreciated by 10.03%, indicating that investors may have factored the bumper results into its share price. Nestle Plc’s shares appreciated by 92% in 2017.
While earnings per share and dividend per share are relatively high, the high share price makes the stock unattractive at its current price.
Nairametrics rates the stock a SELL based on limited room for upside, and its trading at over-valued multiples. Savvy investors could decide to sell and buy back later in the year.
Nestle Nigeria Plc formally began operations in 1961, though imports date back to the beginning of the 20th century. The company’s primary activities include the distribution of food products including purified water. Nestle Nigeria Plc also exports some of these products outside Africa. Some of its popular brands include Milo, Golden Morn, and Maggi.
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