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Companies

Why Nestle Food Plc should consider a stock split

A stock split is a mandatory corporate action that shareholders cannot opt out of.

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Maggi Signature, Nestle Nigeria revenue climb 5% as profit hit N26.2 billion, Nestle Nigeria's Unaudited Financial Statements

In Nigeria, stock investing has always been thought to be an exclusive privilege of the rich or corporate and institutional investors. But in the past few years, retail investors have started making inroads into the market although retail investor participation in the Nigerian market has still been relatively low.

Available data and information indicate that retail investors make up only about 3% of stock market participants in Nigeria, a very low number when compared with such places as Malaysia with 9%, the United Kingdom with 13%, or South Africa’s 13% and United States of America’s 43% retail investor participation. Different reasons may be adduced for the low retail investor participation in the Nigerian stock market.

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The government, through the SEC has and continues to pursue some initiatives to encourage and educate retail investors to participate more in the capital market. It is believed that as financial education takes hold among the populace, retail investor participation will increase.

Corporate organisations also need to complement or augment Government initiatives and efforts to encourage retail investors and it does not look like this has been the case. A way that corporates can do that is by making stock prices affordable to retail investors and one way to get that done, is by stock splits.

The case for Nestle

One company that we think is due for stock split is Nestle Nigeria Plc. There is no doubt that Nestle Nigeria Plc is the most expensive stock in the Nigerian stock market. A share of Nestle Food Plc recorded an all-time high of N1,615 on April 27th, 2018 although its current price of N1,485 per share as at September 11th indicates a falling price trend, it is still the priciest stock in the Nigerian stock market. The share is the only stock in the exchange with a four-digit price tag.

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Broadly speaking, the Nigerian stock market has only about 4 stocks whose prices are in the 3 digits, Seplat Petroleum Development Company Plc, Dangote Cement Plc, Total Nigeria Plc, and Mobil Oil Nig. Plc and they are all in the lower three figures.  There is no doubt that Nestle Food Plc is lonely up there as the only four-figure priced stock and a stock split will be beneficial to both Nestle and the investors.

What Is Stock Split and How Does It Work?

A stock split is a corporate action, where a company increases the number of its outstanding shares in such a way that the proportionate ownership of shareholders remains the same. Different markets have different names for stock split.

In the UK, it is known as capitalisation issue while in Nigeria, it is known as bonus issue but in the US, it is called stock split. There is also a reverse stock split, (opposite of a stock split) which is a situation where a company decides to reduce the number of its outstanding shares while maintaining the proportionate ownership of shares by shareholders.

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While a stock split results in a reduction in price per share, reverse splits increase price per share. Stock splits are good for “expensive” stocks while reverse split works well for “penny” stocks. When there is a 2-for-1 split, the number of shares you hold doubles but the per share price becomes half of what it was before the split leaving the market value unchanged.

On the other hand, a 1-for-2 reverse split will reduce your shareholding by half while the per share price is doubled, again, leaving the market value unchanged.

Stock split should not be confused with stock dividend because stock dividend is a form of corporate action where a company decides not to pay dividend in cash but instead, issue more shares to existing shareholders. In most cases, stock dividend is an elective or optional corporate action event where the shareholder elects or decides whether to accept the additional shares or to receive cash dividends instead. On the contrary, a stock split is a mandatory corporate action that shareholders cannot opt out of.

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Effects of Stock Split

One effect of stock split is that it reduces a company’s retained earnings in proportion to its share capital. Stock split does not affect the market capitalisation, nor does it affect the dividend yield of the affected share. It is not dilutive.

More importantly, (this is the major reason why Nestle Food plc should split), stock split lowers the price of the stock in question and make it affordable to all investors, especially retail investors who may have been put off by the hitherto very high price. In addition, splitting a stock increases its liquidity by increasing the number of trading transactions that occur each trading day.

Stock split also comes with a positive psychological appeal as investors see companies that split their stocks as growing. For Nestle plc, a 5-for-1 split will bring the price down to about N300 per share while a 10-for-1 split will reduce the price further to N150 per share. By so doing, shares of Nestle Food plc will become affordable to many more Nigerians, trading activities will increase, and investors will be positively disposed towards Nestle Food shares.

devland

For Nestle, the time to split is now.

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Patricia

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

5 Comments

5 Comments

  1. MrA1

    September 18, 2018 at 9:12 am

    @Uche this suggestion is great, but will Global HQ in Vevey benefit?

    That is what will more likely drive such a decision by Nestle NG imho

  2. Quantitative financial Analytics Ltd

    September 18, 2018 at 5:49 pm

    Usually, a stock split does not benefit the company financially directly but the benefit comes by way of more activities on the stock which increases the visibility of the company in the stock market.

  3. Clinton

    September 20, 2018 at 7:51 am

    I do not agree with your equation of a stock split to a bonus issue. They are very different.

    • Jeffrey T

      October 4, 2018 at 8:27 am

      You are the one making that assumption the writer clearly distinguished between a stock split and a bonus issue

  4. uchenna Ndimele

    September 21, 2018 at 1:18 am

    You are partially correct, the workings of the two are the same, but their effect on issued and authorized shares/outstanding shares may differ. I may have to do an article on detailed differences between the two, however, the reference to bonus issue was in terms of what they are called in different countries.
    Thanks for your comment

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Companies

Lafarge Africa Plc. announces its board meeting and closed period for Q2 2020 

The notification which was duly signed by General Counsel & Company Secretary.

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Lafarge Africa

Lafarge Africa Plc. notified the Nigerian Stock Exchange and the investing public that he closed period will commence on Wednesday, 8th July 2020 until the unaudited financial statement for the second quarter ended 30th June 2020, is released to the Nigerian Stock Exchange. 

In a disclosure on the Nigerian Stock Exchange, it wrote: “We hereby notify the Nigerian Stock Exchange and the investing public that a meeting of the Board of Directors of Lafarge Africa Plc has been scheduled to hold on Thursday, 23rd July 2020 to consider the second quarter financial results of the Company for the quarter ended 30th June 2020.”  

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The notification which was duly signed by General Counsel & Company Secretary, Mrs. Adewunmi Alode explained further stating that “Accordingly, no Director, employee, persons discharging managerial responsibility and Advisers of the Company and their connected persons may directly or indirectly deal in the shares of the Company in any manner during the closed period.” 

Over the past few months, it made a few board changes with the retirement of two of its Non-Executive Directors, as well as the appointment of three new DirectorsIt had also spun off its South African subsidiary, Lafarge South Africa Holdings (LSAH), last year. 

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READ MORE: NSE’s statement in reaction to the Visionscape Municipality Bond Default

Lafarge Africa’s Q1 2020 revenue was up 9.8% year-on-year to N63.7 billion, driven by higher Cement Sales (a figure up 11% year-on-year to N62.3 billion) which offset the weakness in Aggregate and Concrete (down 21% y/y to N1.4bn). Its EBITDA grew by 2.4% year-on-year to N19.3 billion as well. As at Tuesday the 7th of July, the share price of the company was N10.00 

 

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Companies

AXA Mansard Insurance Plc gives notice of Annual General Meeting 

The AGM will be live-streamed to enable shareholders and stakeholders participate.

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AXA Mansard Insurance Plc

Insurance firm, AXA Mansard Insurance Plc., has given notice of its board of its Annual General Meeting (AGM) scheduled for Wednesday, July 29, 2020, at 10:00 a.m.  

The announcement which was disclosed by Nigerian Stock Exchange (NSE) in a corporate disclosure on July 7th, 2020 and signed by Company Secretary, Omowunmi Mabel Adewusi read, “Notice is hereby given that the twenty-eighth annual general meeting of AXA Mansard Insurance Plc. will hold at the Oriental Hotel, no. 3, Lekki Road, Victoria Island, Lagos on Wednesday, July 29, 2020, at 10:00 a.m.” 

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READ ALSO: AXA Mansard divests from its pension and real estate ventures

As noted, the purpose of the AGM is to transact the following business: 

  1. To receive the Audited Financial Statements for the year ended December 31, 2019, and the Reports of the Directors, Auditors and Statutory Audit Committee thereon 
  2. To authorise Directors to fix the remuneration of the Auditors 
  3. To elect Directors and 
  4. To elect members of the Statutory Audit Committee.  

In order to ensure that all relevant stakeholders can be a part of the AGM, the company will also be streaming the AGM live. It noted that “This will enable shareholders and other stakeholders who will not be attending physically to follow the proceedings.” 

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The link for the live streaming of the Meeting will be made available on the Company’s website at www.axamansard.com. 

READ MORE: Sterling Bank’s earnings to remain pressured but valuations still attractive

Recall that a few months ago, in March, the company’s Board of Directors announced the appointment of John Dickson as the company’s new Non-Executive Director. A month earlier, it also disclosed its plan to sell its pension management subsidiary (AXA Mansard Pensions Ltd) and some undisclosed real estate investments. 

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Its unaudited financials for the period Q1 2020 reveal a growth across revenue and profit lines. Gross written premium grew by 21% from N17.4 billion earned in Q1 2019 to N21 billion in Q1 2020. Profit for the year for the group grew by a commendable 120% from N890 million in Q1 2019 to N1.9 billion in Q1 2020. 

As at Tuesday, the 7th of July when markets closed, the share price of the company was N1.59. The company’s EPS stood at 0.33 while its price to book ratio stood at 0.6082. 

 

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Companies

NSITF board to investigate suspended MD and others over financial misconduct

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NSITF, FG moves to scrap hazard allowances earned by State Governors

The board of directors of the Nigerian Social Insurance Trust Fund (NSITF) has revealed that it will investigate the activities of the suspended Managing Director, 3 Executive Directors, and 8 other senior management staff over financial breaches and gross misconduct.

This was disclosed by the Chairman of the board of NSITF, Mr. Austin Enajemo-Isire, in a statement in Enugu on Sunday July 5, 2020.

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Enajemo-Isire said that the Managing Director and other top management staff of the organization would have the opportunity to clear themselves of any wrongdoing with the probe panel which was being set up.

READ MORE: Ecobank appoints Aissatou Djiba Diallo to oversee its fintech initiatives 

While reacting to claims that the suspension did not follow due process as President Muhammadu Buhari did not approve it, Enajemo-Isire said that the approval for the suspension of the affected staff had been conveyed to the Labour Minister in a correspondence referenced SGF. 47/511/T/99 of June 30, 2020.

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According to the Chairman, “The minister has conveyed this approval and directives to me for necessary action in terms of setting up a board-driven investigative panel.

READ MORE: Nigeria’s debt rises to $79.5 billion, as debt to revenue ratio worsens

“This is to give the affected officers the opportunity to clear themselves of the financial and procurement breaches and acts of gross misconduct and other infractions that gave rise to their prima facie indictment.

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“It is in this light that I have decided to call a virtual meeting of the management board on Tuesday, July 7, 2020, to consider the modalities for our action.”

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He, therefore, appealed to staffers of NSITF and their social partners to keep calm and exercise restraint.

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A few days ago, Nairametrics reported the suspension of the Managing Director and some senior management staff over corruption allegations. However, the management in its reaction debunked that claim and said that the President did not approve their suspension but that rather, it was the sole decision of the Labour Minister, Chris Ngige, who they said was overreaching himself.

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