Nestlé Nigeria Exits 13-Digit Valuation, Share Drops 21%
Nestle Nigeria Plc has lost its place among the Nigerian Exchange trillion naira market capitalisation gang after sell orders on the consumer goods company were executed consecutively last week.
Having hit its multi-year low, the consumers’ good producer, Nestle Nigeria Plc, fell off the cliff following massive selloffs of its shares barely four weeks after it announced a change to its board of directors.
On Friday, the company’s market price fell to N963.90 as investors sold 691, 263 shares. The company stock was quoted at N1,071 on Thursday. The market recorded a similar heavy transaction on the share prior to this. In its recent earnings release, the consumer goods operator battled high production costs amidst rising headline inflation; and worsening local currency.
Initially thought to intermittent stock market joke, but reality has dawned on shareholders that their favourite consumer goods company has given up its 13-digit capitalisation identity in the local bourse. For the first time in 2022, Nestle Nigeria’s share price dropped below N1,000, the level rarely seen for the local bourse’s top dividend aristocrat with closely held stock.
As a result market valuation declined strongly as Investor sentiment deteriorated by 21% to N764 billion on 792.656 million outstanding shares. Trading data from the stock market show that Nestle Nigeria opened the year at N1.556.50.
It however consolidated around N1,400 at the end of the first half of 2022. The level the stock maintained up till July 27 before another round of selloffs dragged its market price lower. READ: Stock Market Sheds Weight as Investors Trade Exits
Over the last seven trading sessions, trading data from the local bourse show the consumer goods company share price dropped lower from N1,215 – the level first tested on September 30, 2022. Nestle Nigeria share had traded in that region, then slumped to N1,190 on November, 19. Year to date, Nestle Nigeria has lost more than 38% of its share price.
Following the revisions to Cordros Capital analyst forecasts and adjusting for heightened cost pressures, analysts at the investment firm downgrade price target for Nestle Nigeria to N1,348.98 from N1,498.69 and maintain a hold rating.
Earnings
Nestle Nigeria delivered an impressive earnings performance in 9-months 2022 unaudited result, driven by the company’s resilience despite the increasingly competitive landscape, according to analysts.
In its equity note, Cordros Capital analysts stated that its margins have maintained a downtrend through the year, driven by increased cost pressures due to the highly inflationary environment and FX liquidity constraints within the country.
“Nevertheless, we expect Nestle Nigeria to see out the year positively, aided by the increased demand typically associated with the end-of-year festivities in Q4.
“Overall, we are upbeat about Nestlé’s medium-term growth prospects, given the company’s ability to utilize its brand equity and innovativeness to withstand stiff competition from unlisted cheaper brands”, analysts stated.
They expect cost pressures, especially from the sourcing of raw materials to inhibit gross and operating margin expansion. The food producer’s revenue grew markedly by 27.5% year on year, supported by growth across the business’ Food and Beverages business lines.
However, analysts said a 34.9% year-on-year increase in the cost of sales undermined the impressive topline growth and dragged margins, reflecting the effects of inflationary pressures and currency exposure.
For clarity, gross margins dipped to the lowest 9 months print in at least eight quarters, declining by 355 basis points to 35.2%, forcing 226 basis points in its earnings before interest tax depreciation and amortization (EBITDA) margin to 21.6%.
Notwithstanding, EPS grew markedly by 19.6% year on year to N50.66 in 9M-2022. In its estimates, Cordros capital analysts raise revenue growth expectation for 2022 to 27.8% from +20.9% and forecast a 19.8% average annual revenue growth over the medium term.
“We now model a 250 basis points decline in the 2022 gross margin, reflecting cost pressures from the high domestic inflationary environment and currency weakness. Analysts forecast that EPS will increase by 21.4% year on year to N61.33 in 2022. # Nestlé Nigeria Exits 13-Digit Valuation, Share Drops 21%