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Nestle FY’14 result… analysts’ tale of mixed feelings

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Recently at the Nigerian Stock Exchange (NSE), Nestle Nigeria plc released its full-year results for the 12-month ended December 31, 2014. The Nigerian unit of world’s biggest food group reported turnover increase by 8 percent to N143.328 billion from N133.084 billion in 2013.

Profit before taxation (PBT) dropped by 6 percent to N24.445 billion from N26.047 billion in 2013. Profit after taxation (PAT) dropped by 0.1 percent to N22.235 billion from N22.258 billion in 2013.

The company recorded 567 percent rise in interim dividend payout in 2014, valued at N7.926 billion against N1.188 billion in 2013. Its total dividend payout rises by 8 percent, to N21.798 billion against N20.212 billion in 2013.

Nestle is proposing a final dividend of N17.50 per share amounting to a total final dividend of payout of N13.871 billion from the pioneer profits of the company.

In 2013, Nestle Nigeria plc paid N24 final dividend that amounted to N19.023 billion. The directors of Nestle Nigeria plc have resolved to recommend this to the members at the annual general meeting to be held Monday, May 11, 2015.

According to the directors, “we are pleased with the turnover growth despite the challenging macro-economic environment. It is encouraging that we sustained almost the same level of profit after tax in 2013, notwithstanding the devaluation of the naira which increased our net finance costs. We will continue to increase our marketing investments, accelerate innovation and ensure that our pricing is always sensitive to consumer needs.”

The company further told members of the Nigerian Stock Exchange (NSE) that the final dividend per share was payable on the issued share capital of 792,656,252 (against 792,656,252 in 2013) ordinary shares of 50k each held by each member of the company registered in the books as of close of business on Friday, April 24, 2015.

“This will make a total dividend payment of N27.50k per share for the year ended 31 December 2014. The proposed final dividend of N17.50k from the pioneer profits will be paid on Tuesday, 12 May 2015 and is not subject to deduction of withholding tax,” the company said.

Shortly after the release of this result, while most analysts took a bash on the result, others remained positive.

In their first reaction, FBN Capital analysts said: “This dividend implies a final dividend yield of 2.1 percent and a total dividend payout ratio of 98 percent. Consensus was expecting a final dividend per share (DPS) of N16.5 for 2014E. We do not expect the proposed dividend to impress the market; instead we expect the market’s reaction to the results to be negative given the weak underlying performance.

“Nestle’s PBT of N24.4 billion missed consensus 2014 PBT forecast of N27.9 billion. As such, we expect downward revisions to analysts’ 2015E estimates. Although Nestle’s top line growth of 8 percent missed management double-digit target for the full year and Q4, we expect this growth figure to be among the highest of the consumer names during this earnings season, in line with past trends. At current levels, on our published estimates, Nestle shares are trading on a 2015E P/E multiple of 27.5x for 13 percent EPS growth in 2016E. Year to date, Nestle shares have declined -13.8 percent compared with the NSE ASI (-11.0%). We rate the stock Underperform.”

Financial analysts at Cordros Capital said: “Interestingly, though revenue bucked its decade trend of double-digit y/y growth, it is important to acknowledge the company’s capacity to grow its top-line year-on-year and quarter-on-quarter in all four quarters of the year.”

“The result shows 6.15 percent y/y and 0.10 percent y/y contractions in PBT (to N24.5bn) and PAT (to N22.2bn), respectively, despite a 5.52 percent y/y growth in operating profit. Pre-tax profit was adversely impacted by higher finance charges (+147% y/y) as Nestle ramped up short-term loans during the year while post-tax profit, which contracted by a lesser rate, was supported by over 500bps reduction in tax rate,” Cordros Capital analysts said, noting that they put Nestle on ‘hold’ to better understand impact of tax rate and finance charges.