Nestle Q3 result falls short of analyst expectations

Nestle, maker of nutritional, health and wellness products has submitted its third quarter result to the Nigerian Stock Exchange, showing a significant 24 percent increase in

Nestle, maker of nutritional, health and wellness products has submitted its third quarter result to the Nigerian Stock Exchange, showing a significant 24 percent increase in turnover from N57 billion the previous year to N71 billion.

Meanwhile Profit before tax dipped by 4.4 percent, to N12.6 billion in 2011 from N13billion the previous year, indicating a further increase in the company’s cost profile (as seen from the Q2 2011 results) while profit after tax grew marginally by 0.4 percent from N9 billion the previous year to N9.1 billion.

Cash and bank balances dipped by a sharp 58 percent, from N3,09 billion to N1.2 billion, while other credit balances marginally went up by 4.6 percent. Also the company’s short term borrowings, climbed by a steep 130 percent, to N8 billion from N3 billion in 2010.

A further look at the company’s previous result (Q2)  shows an 18 percent increase in turnover, from N37.7 billion to N44billion, while its profit after tax grew by a marginal 3.6 percent from N6 billion the previous year to 6.2billion.     
Quarter on-on quarter, Nestle reported a turnover of N26.0bn in Q3 2011, representing a 6.5 percent increase over the N24.4bn posted in Q2. The company however recorded huge declines of 38.3 percent and 28.6 percent on PBT and PAT to N3.7bn and N2.9billion, from Q2 2011 levels respectively.

Commenting on the company’s results, analysts at Afrinvest said, these results largely fall below  unannualised FYE 2011 estimates, particularly on a bottom line basis and that turnover came in 0.6% shy of  N71.3bn forecast, while PBT and PAT underperformed by 21.9% and 19.4% respectively.

They added that the results called for concern, as they show a sharp deviation from the company’s historically strong performances in Q3 and Q4, both on top and bottom lines.

Analysts at Afrinvest, however stated that, they expect the new factory at Flowergate Industrial Estate, which was commissioned in February 2011, to continue to positively impact on revenues. They further said Nestle’s operating cost profile needed to be better managed.

According to them, on the strength of this performance, Nestle trades at a trailing Price/Earning of 21.0 times earnings based on an Earning Per Share of N19.08 and current market price of N401.00 (as at October 25, 2010). This represents a premium to its peers trading at an average trailing P/E of 12.1x earnings.