Segment leaders, improved distribution power Nestle above Unilever

Renaissance Capital, a leading emerging and frontier markets investment bank, has rated Nestle ‘Market Outperform’, meaning that they expect investment in the stock to earn return in excess of that earned by The Nigerian Stock Exchange All Share Index (NSE ASI). It said that Unilever, Nestle’s major competitor, will underperform the ASI, rating Unilever ‘Undeperforn’.   

The investment banking giant recently launched its Consumer Price Tracker (the Tracker) that will collate and compare prices of major consumer brands in Lagos including products by Nestle Nigeria, Unilever Nigeria, Cadbury Nigeria and other competitors.

“We are seeing green shoots emerge in the Nigerian economy and our Consumer Price Tracker comes at a much needed time to contribute in maintaining the momentum as Nigeria regains its position as the leading economy in Africa,” said Temi Popoola, chief executive officer of Rencap’s Nigeria operations.

In a release announcing release dated 31 May 2017, which was made available to BusinessDay, Rencap said the Tracker will furnish investors, analysts, government and businesses with insight and data to make more informed investment decisions, as well as provide information useful in evaluating the impact of economic changes on the pricing of consumer goods. This will include measuring price differences and similarities between competing brands, and tracking the country’s inflation rate.

Adedayo Ayeni, Consumer & Retail Analyst, Sub-Saharan Africa, said that the consumer tracker is Rencap’s way of bridging the information gap that some researchers, analysts and investors have experienced in the past.

“We are confident about our new product and its reliability in providing useful insights that will not only engender more informed investment decisions but will also highlight gaps in the consumer sector that must be closed.”

The tracker said that Nestle’s Maggi stock cube price has increased by 11 per cent sice the beginning of the year, compared with Unilever’s price increase of between 26 per cent and 30 per cent on its competing Knorr seasoning cubes.

 In December 2016, the Tracker said that Unilever’s Knorr was priced 13% higher than Maggi on a per-gramme basis, with the pricing premium widening to as much as 33 per cent on the back of persistent higher increases imposed by Unilever.  

Unilever may have increased prices to recover operating margins threatened by foreign exchange exposure.

 “Unilever’s FX-denominated costs stood at 62.8% of production and operating costs in 2016 financial year (FY16) versus 40.0% for Nestle,” said the Tracker release.

Rencap says that Nestle has additional scope to implement further price increases, given the observed discount to Nestle’s Maggi compared to Unilever’s Knorr, noting that Nestle has increased prices of some products more than competitors.

Beverage prices indicate that Nestle has imposed a 28 per cent price increase year-to-date on its 500g Milo, said the Tracker, compared with the 20 per cent to 21 per cent price increase implemented by Cadbury on Bournvita. On comparative pricing, Rencap said the Milo Sku (Stockkeeping unit) available in the store during its check was priced 3 per cent higher than Bournvita in the same Sku.

 “On net, we prefer Nestle to Unilever, given the company’s segment-leading brands and improved route to consumer, which management says has helped it gain market share.”

 Nestle also appears to us to be a more resilient player in its segments than Unilever.

 Nestle closed at N918.76 when trading closed on Friday last week, returning 13.43 per cent year-to-date; Unilever closed at N37.49 per cent, returning 7.11 per cent yea-to-date.