Nestlé S.A buys N17.5bn of Nigerian unit shares in 8 months

The Switzerland-based Nestlé S.A, majority shareholder of Nestlé Nigeria plc, has bought about N17.5 billion worth of the Nigerian unit’s shares in the past eight months, BusinessDay analysis shows.

The majority shareholder in the largest Nigerian listed fast-moving consumer goods (FCMG) company has between March 2 and November 2, 2021, bought 12,611,629 units of Nestlé Nigeria shares, according to notifications of share dealings by the company’s insiders.

“The fundamentals of Nestle remain strong and the parent company remains committed to Nigeria, especially as its product portfolio remains household names and leading brands across the different segments of the FMCG market,” notes Yadinma Onwu, executive vice-chairman, Funds Matrix & Assets Management Limited.

In his view, the continued acquisition of Nigerian unit shares by the parent company “may not be unconnected to their inability to source foreign currency to repatriate their dividends. So, it may have been a decision aimed at reinvesting the dividend to increase their equity stake, rather than losing value on the Naira amount of the dividend.”

Nestlé S.A. is a Swiss multinational food and drinks processing conglomerate headquartered in Vevey, Vaud, Switzerland, and is the largest food company in the world, measured by revenue and other metrics, since 2014.

Nestlé Nigeria, a subsidiary of Nestlé S.A., is one of Nigeria’s largest food and beverage companies and has been in operations in the country since 1961. The company produces and markets global brands like Maggi seasoning cube, Milo, and Nestle Pure Life Water.

Apart from Societe Des Produits Nestlé S.A, Switzerland, with 524,559,457 ordinary shares (representing 66.18%) and Stanbic IBTC Nominees Limited with 5.59 percent, no other shareholder held 5 percent or more of the paid-up capital of the company as of September 30, 2021.

In line with Nestle’s purpose of unlocking the power of food to enhance the quality of life for everyone today and for generations to come, the company in 2020 broadened its portfolio to help consumers fulfil their nutrition needs.

Nestle Nigeria’s latest innovation is the new Golden Morn Multi-Cereal, fortified with iron and other vitamins and minerals, Wassim Elhusseini, its managing director/CEO, said.

In nine months to September 30, 2021, Nestlé Nigeria unaudited financial statements for the period shows revenue of N261.591 billion as against N212.732 billion in 2020, up 23 percent.

Profit before income tax increased by 5 percent to N51.584 billion from N49.261 billion in 2020; while profit for the period rose to N33.584 billion from N31.937 billion, up 5 percent.

The CEO noted that the last quarter of 2021 offers Nestlé Nigeria the opportunity to build on the achievements of the first three quarters, adding, “The company will remain focused on ensuring the well-being of its people and on ensuring the continuous provision of high-quality nutrition to consumers across the country.

“We are pleased with the Q3, 2021 performance of our Company which is again, a testament to the dedication and commitment of our people to ensure that we continue to deliver value for our shareholders, our communities, and our consumers.

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“It is clear that the business environment will continue to change rapidly during this COVID-19 era. We will, therefore, continue to adapt to new ways of working, ensuring that our business remains agile to continuously deliver our promise of affordable nutritious food and beverages to meet the needs of our consumers.”

At N1,400 per share as at close of trading on Tuesday, November 2, 2021, its market cap stood at N1.109 trillion. Nestle’s stock price has decreased by 6.6 percent this year.

Nestlé Nigeria announced an interim dividend of N25 per share, which will be paid to shareholders whose names appear on the register of the member as at close of business on November 19.

The proposed interim dividend for the period ended September 30, 2021, amounts to N19.8 billion.

Nestle Nigeria has 792,656,252 shares outstanding –currently held by all its shareholders.

Analysts ask investors to HOLD Nestle stock: “We note that the beverage segment had been the stronger growth force in recent years, averaging 8 percent over the last two years (food has averaged 1% in the same period),” said Chinma Ukadike’s team of analysts at Lagos-based Vetiva in their recent note following Nestlé scorecards.

However, the earnings beat in the third quarter was driven by a robust performance in the company’s food segment, which grew 42 percent y/y and outstripped the beverage segment (which only grew 8percent y/y)”, Ukadike said.

“Admittedly, driven by its increased foreign currency inter-company borrowings, exchange rate depreciation as well as generally higher yields, Nestle’s finance costs have jumped considerably so far this year, rising 2.5x to N4.7 billion.

“With more efficient working capital management, Nestle’s overall cash balance has improved significantly (+32percent) to N116.7 billion. Thus, we estimate a target price (TP) of N1,602.80 and rate the stock a HOLD”, Vetiva analysts added.

Vetiva’s HOLD rating for Nestlé Nigeria stocks is because they consider it correctly valued with little upside or downside, and where potential return between +5 and +14.99 percent is expected to be realized between the current price and the analysts’ target price (TP).

Meristem research analysts said their revenue outlook for Nestle Nigeria Plc full year 2021 remains positive “primarily influenced by the robust performance recorded so far and the expectation of improved demand relative to the corresponding period last year.”

They noted further that their earnings expectation for the end of the year “is largely contingent on our topline outlook and the ability of the firm to manage cost pressures.”

“We retain our 2021FY target price of N1,482.13 on the back of an expected Earnings Per Share (EPS)of N51.51 and a target price-to-earnings (P/E) ratio of 28.77x. Hence, we rate the ticker a HOLD”, added Meristem analysts who also noted their HOLD rating for Nestle Nigeria Plc stocks is because their Target Price of the stock ranges between -10percent and 10 percent as against the current market price.

Earlier this year, United Capital research analysts asked investors to also HOLD Nestle Nigeria plc shares. They said: “Nestle’s products have strong brand backing with wide distribution coverage. In addition, most of the company’s products are fairly inelastic given the retail appeal to the bottom of the pyramid segment of the market.”

However, United Capital analysts expect the cost to remain a concern in the 2021 financial year “as raw material cost remains elevated.”