Published On: Sun, Aug 5th, 2018

Nestle’s surging profits confound market

By OKEY ONYENWEAKU

Nestle Nigeria has resisted the smothering effect of a weak economy and raised its head high. Pushing back on the harsh macro-economic environment, the company beat analysts’ expectations in its half year performance for the period ended June 31, 2018 as reflected in the 30 per cent increase in the company’s profit before tax.

While the manufacturing sector has generally lost steam as a result of high domestic production costs and poor access to raw materials, Nestle still managed to scoop up revenues of N135.295billion, representing an 11 per cent rise above the N121.919billion posted in 2017.

The company’s profit before tax grew 30 per cent from N24.45billion in 2017 to N31.8billion in 2018. Analysts are of the opinion that this was achieved from better management of operating costs.

Despite a number of niggling problems including foreign exchange uncertainty, Nestle Nigeria’s profit after tax rose 30 per cent from N16.5 billion to N21.7 billion in 2018.

‘’We link the higher food volume growth to the just concluded Ramadan season which likely drove demand for Maggi whose popularity is predominant in the North. On its beverage business, our price check revealed average price increase of 7%, indicating volume growth on that end’’, say analysts at Proshare, a digital online market analysis platform.

Nestle Nigeria’s major competitor, Cadbury Nigeria Plc, closed the half year with a loss before tax of N455.2million in 2018.

However, Nestle’s inventories rose by 7 per cent from N23.910billion to N25.538billion in 2018. Analysts blame this on a fall in disposable income in the economy caused by a delay in passing of the 2018 budget.

President of Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs has fingered a lack of disposable income as a major cause of mounting inventories of unsold stock in the ware houses of manufacturing companies.

“Most of our members complain about unsold inventories, because people are not buying their goods, which can be attributed to the delay in the passage of 2018 budget and lower consumer spending.

“Furthermore, cost factors have equally hurt manufacturers. A situation where you generate your own power for production does not make you competitive, because whatever is produced in this country is produced at a higher cost when compared to other parts of the world.

“The same goes for transportation, as we still move most of our goods by way of surface road transportation, even heavy dry products. Such good should ideally be transported by rail.

“There is need to develop the transportation sector to the point where it can support the manufacturing sector and also support the economy,” he said.

Market observers have also noted that manufacturing capacity utilization has continued to slide since hovering between 70 and 75 % between 1975 and 1980.

However, some analysts have pointed to the easing of forex given the Central Bank of Nigeria’s (CBN’s) strategic move with the ‘Investors and Exporters FX Window’ as helping companies push down cost. Inflation rate is also backing off but there are fears of an upward reversal in months ahead.

Managing Director/ Chief Executive of Crane Securities limited, Mr. Mike Ezeh, adduced many reasons which keeps Nestle Nigeria as a premium company and stock. Ezeh pointed out that many investors are attracted to Nestle Nigeria because it is the highest income earning stock on the bourse. He explains that those who invest for income channel their investment to Nestle which also pays high dividends.

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

When Nestle attained a stock price of N1,088 per share in May, 2013 many had thought that it had attained a market ceiling. But the company’s share price has since gained an additional 50 per cent to close at N1220.00 per share (an unprecedented high) in September7, 2017 before going on to climb to a stunning N1,560 per share. This was roughly twice the price of the second highest priced stock on the market’s main board, Seplat Petroleum Plc at N704 as at August 2, 2018.

Despite a 2008 market dip, Nestle has remained 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, N19.00 in 2016 and N42.50 in 2017.

A shareholder and member of Nigerian shareholders Solidarity Association (NSSA), told Business Hallmark that Nestle Nigeria has stood the test of time and has benefitted many shareholders.

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 against the wave of 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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