Nestle’s Better Quarter Still Has Investors Fleeing

Lagos –Just when analysts thought the company’s torrid first quarter was the reason its stock plummeted for the period, a significantly better second quarter, even had matters worse than seen in the three months prior. The capital loss experienced can only be caused by the general market apathy and investors fleeing the Nigerian market.

By the close of trading Monday September 10, the Nestle stock was selling for N1355.10, about N346 less than the highest price it went for this year just after second quarter results were announced June. The results were that strong to lift the stock price.

Second quarter revenue of the makers of Milo and Nescafé expanded 11 per cent in the second quarter ending June to N135.3 billion from N121.9 billion despite the generally tough conditions restricting consumer purchases.

Cost of sales increased by a moderate 8.4per cen to N79.7 billion from N73.6 billion in the period.

The rise, despite, gross profit or top line profit was 15 per cent better than the equivalent period as it grew to N55.57 billion from N48.34 billion. This impacted gross profit margin, lifting it to 40 per cent from 39.7 percent.

The company whose factories are at Agbara in Ogun State was able to raise operating results by 20.4 per cent or N32.15 billion from N26.7 billion.

This in turn pushed up operating margin to 24 per cent from 22 percent. This was after significantly cutting down marketing and distribution costs in the period. A fall out of improved operating results is a jump in operating margin to 24 per cent from 22 per cent.

This is indicative of the company having a firm control of its operations costs. It is a marked improvement from the previous quarter when the index slipped by one percentage point.

Interestingly, the company drastically worked down its net finance costs by a whopping 87 per cent to a negative N280.7 million from a negative N2.24 billion.

This helped, in no small way, the company to boost pre-tax profits 30 per cent to N31.87 billion from N24.5 billion in the period. This led to a 24 per cent pre-tax profit margin, up from 20 per cent.

Net profit shored at 30 per cent to N21.46 billion from N16.55 billion and a consequent rise in net profit margin to 16 per cent from 14per cent. This is a passable margin considering inflation rate of 11.14 percent. It means real gains of 4.86percent.

But despite this strong showing, the company stock price has been on a downward spiral, even though it is still outperforming the market.

In the last six months, the Nestle stock has returned a negative 4 per cent to investors, while the All Share Index (ASI) has delivered a negative 21 per cent.

Indeed the stock is doing no better than it did in June when it retuned a positive 5 per cent to investors in the six months to June while the All Share Index (ASI) produced negative returns.

As noted in our earlier analysis, the continued drop in value and indeed other companies in the exchange is a systemic glitch occasioned by market exit by portfolio investors who perceive Nigeria as high risk towards the upcoming general elections.

Meanwhile, in the last quarter the company’s revenue grew by a narrow 10.3 per cent to N67.46 billion from N61.15 billion. This is as net profit improved by only 3 per cent to N8.8 billion from N8.4 billion.

The southward movement in top and bottom line profits suppressed crucial margins including gross profit margin that sank to 38.2 per cent from 38.4 per cent.

The result puts to question the pricing strategy of the company. Operating profit margin also slipped by less than a percentage point in the period to 21.5 per cent from 21.6 per cent. This is despite a slit improvement in operating profit to N14.51 billion from N13.2 billion.

The company lost grip of its pre-tax profits in the period as it slipped 4.5 per cent to N13.64 billion from N14.3 billion resulting in a loss in pre-tax margin to 20.2 per cent from 23 per cent in the period under review. But net profit improved by a slight 3 per cent to N8.61 billion from N8.4 billion, which unfortunately set back net profit margin to 12.8 per cent from N13.7 per cent.

The post Nestle’s Better Quarter Still Has Investors Fleeing appeared first on Independent Newspapers Nigeria.

By Kirk Leigh

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