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Published On: Mon, Mar 19th, 2018

Nestle Nigeria excites investors with high investment yield

…but traders complain of market illiquidity

By OKEY ONYENWEAKU

With a dividend payout of N42.50 per share for the year ended 2017, shareholders would ordinarily have had broad smiles plastered on their faces as they pick up their dividend slips (or more recently received credit notices on their phones). The payment of N42.00 as dividend is unprecedented in the history of the local Nigerian stock market. However, the figure amounts to a dividend yield of 3.05 per at a recent market price of N1, 380.00 per share at the close of business on March 16, 2018.

The good news, however, is that shareholders made a kill in capital gains. Nestle Nigeria shareholders gained N745.99 per share from stock which closed at N1.555.99 on December 29, 2017 from N810 per at the beginning of the year.

Nestle Nigeria Plc’s pre-tax profit for the year ended December 31, 2017 jumped 117.3 percent to  N46.828 billion from N21.548 billion posted previously.

Its post-tax profit grew 325.5 percent to N33.723 billion from N7.924 billion declared in the corresponding period of 2016.

Revenue of Nestle rose to N244.15 billion from N181.91 billion recorded the same period of 2016; indicating a growth of 345 percent in the review period.

‘’We are pleased with the growth which is a result of multiple factors; the continued loyalty and trust of our consumers in our brands, the dedication of our people and the efficiency of our distribution network. In line with our strategic roadmap, we will continue to invest behind brands and route to market activities while proactively managing input cost pressures to stay on the growth path.’’ Said the company.

Against all odds, the company left nobody in doubt that it was getting a better hang on how to navigate its operations in a weak economy which suffered a twelve month recession. The beverage giant has showcased impressive performance and has kept investors happy.  The sterling result of the company is surprising in a harsh macro-economic environment.

The company’s cost of sales however, rose 34 per cent to N143.280billion from N106.583billion in 2016.

The company has informed stakeholders that it will continue to focus on growth through product innovation and renovation adapted to local tastes. It added that it will continue to build on the gains of its cost reduction initiatives, ‘’which have delivered improvements in our 2017 results’’

Speaking on the results, the Managing Director of the confectioner, Mr. Mauricio Alarcon, assured stakeholders of the determination of board and management to sustain the positive performance.

He explained that the revenue growth was supported by strong consumer and distribution-led activities as well as benefits of pricing effects of last year.

“The growth is an affirmation of the loyalty and trust that our consumers have in our brands despite pressure on disposable income and tough market conditions,” he said.

The company added that net profit for the period has increased substantially due to internal cost savings initiatives, operating efficiency and a significant reduction in the net financing costs.

“The board and management remain committed to unlocking the potential of the business supported by our strategic roadmap. The company will further increase investments behind brands and route-to-market activities while proactively managing input cost pressures,” it added.

The giant beverage company had posted a drop in profit after tax by about 66 per cent from N23.7billion in 2015 to N7.9 billion in 2016, caused by revaluation of dollar denominated loans. This challenge which was also attributed to the macro-economic challenge in 2016 also reflected on the poor dividend package it paid to shareholders which declined from N21.00 to N10 per share. But this has changed as the company has achieved a calculated growth in almost all measurement indices in 2017.

Nestle Nigeria is a blue chip and this status has earned the company huge respect. Investors can hardly talk about high- flying stocks in the equity market without mentioning Nestle Nigeria Plc.

Nestle Nigeria attained a stock price of N1, 088.00 per share on May 30th, 2013 an unprecedented value many thought was its peak. But its share price gained 92 per cent year to date to close at N1555.99 per share another unprecedented peak on January 2, 2018 from N810.00 early in 2017. Today Nestle’s stock is about N595 higher than Seplat Petroleum , the next highest priced stock in the market.

Analysts have fingered the easing of forex given the Central Bank of Nigeria’s (CBN) strategic move with its then freshly introduced ‘Investors and Exporters FX Window’ which helped several companies survive the foreign exchange strain that plagued the earlier part of the year. The company’s committed involvement in backward integration helped it source a substantial part of its raw materials locally. Analysts have hinged the progress of the baby food and beverage manufacturer to the general improvement in the economy which has just elbowed out of a recession. The effect of this has been major growth.

Inflation is backing off.

Managing Director/ Chief Executive of Crane Securities limited, Mr. Mike Ezeh, adduced many reasons responsible for Nestle Nigeria’s status as a premium brand and stock. Ezeh pointed out that many investors are attracted to company because it is the highest income earning stock on the local bourse. He explained that those who are investing for income channel their cash to Nestle which pays one of the highest local dividends.

‘’It has made a huge impact in the food and beverage sector and has also captured substantial market share’’, says Ezeh.

Before and even during the erosion of stock values in the 2008 market, Nestle was formidable.  Its dividends history reveals that it paid N1.50 kobo per share in 2001 and N6.50 in 2002. In 2003 investors earned N7.00 per share as dividends. The company also paid dividends of N7.00 in 2004, N7.00 in 2005 and N10.00 in 2007.It also paid N11.95 kobo in 2008, N12.55 in 2009, N10.60 in 2010 and N12.55 in 2011, N18.50 in 2012, 18.50 in 2013, N17.50 in 2014, 17.50 in 2015, N10.00 in 2016 and N42.50 in 2017.

Recently too, African leaders and stakeholders have expressed worry about the future of manufacturing in the continent despite the avalanche of human and natural resources available.

Their view was that the traditional industrial pattern which is still holding sway in Africa would continue to keep the continent down if it does not join the fourth industrial revolution which embraces emerging technologies such as mobile connectivity, artificial intelligence, next-generation robotics, and 3D printing, supply chains, etcetera.

In his key note address at the yearly general meeting of Manufacturers Association of Nigeria (MAN) former President of the United Republic of Tanzania, Benjamin William Mkapa, said Nigeria and other African countries will be making a grave mistake if they looked at the development of industries in the world and think that they ought to follow a similar path to that industrial economies have followed, and ignore areas where Africans have comparative advantage.

“As a start, it is important for Nigeria to pause for reflection and assess its own economic history and profile so as to determine its impact on its manufacturing sector growth or decline so far. Generally speaking, the future of manufacturing industry not only in Nigeria, but in Africa as a whole, is not that rosy as it is very uncertain,” he said.

Nevertheless, the truth is that Nestle has remained consistent in terms of performance aside from having good fundamentals. These have sustained its high price over the years. But many have fingered the huge percentage stake of its core investors as the major reason the stock may be considered illiquid. Details, however, show that Nestle S. A. of Switzerland and Nestle CWA limited, Ghana are the major shareholders of the company, controlling 3.17% and 59.13% of the company respectively. This has left investors with fewer shares of the company.

Nestle still remains one of the stocks that are riding with the bullish industry trend and is still enjoying the commanding height in the Food/Beverages and Tobacco sub-sector of the NSE. Nestle

Nigeria Plc, is a member of the respected and reliable nutrition; health and wellness company renowned world-wide for its high quality products.

The company commenced simple trading operations in Nigeria in 1961 and has today grown into a leading food manufacturing and marketing company. Nestle which products include Bouillon Cubes, Maggi Chicken, Cray fish and super onion spices, Nestle Nutrend, Cerelac , Nan –Baby food, Nestle Golden Morn-Cereal, Nestle Nido, Carnation- Milk and Nestle Milo (Chocolate drinks) and Nescafe (Coffee) brand of beverages, was listed on the Nigerian Stock Exchange on April 20,1979.

 

 

 

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