Nestle (Nigeria) Plc yesterday announced its full year 2011 results, with turnover coming in strong at N98.0bn, 18.4% higher than the N82.7bn reported for FY 2010. Although PBT recorded a marginal 1.6% rise to N18.5bn, post-tax profits came in stronger by 33.4% from N12.6bn to N16.8bn. The company proposed a total dividend payment of N12.55 for FY 2011, translating to a yield of 2.9% on the current market price. We believe this impressive result rides on the back of the company’s focus on efficiency and brand innovation. These results were largely in line with our expectations as turnover came in only 0.9% shy of our N98.9bn estimate, while PBT was 14.9% below our N21.8bn estimate. PAT, on the other hand, beat our N15.0bn estimate by 11.7%.
Nestle trades at a trailing P/E of 20.8x earnings based on an EPS of N21.20 and current market price of N441.00 (as at February 22, 2012). This represents a huge premium to its peers, trading at an average trailing P/E of 11.3x earnings. We suppose this premium stems partly from its relative illiquidity on the bourse. Although we remain positive on the long term outlook on Nestle, we believe the stock is pricey on absolute and relative valuation bases. We have established a target price of N392.14 (cum-div) based on a blend of valuation methods, suggesting a downside potential of 11.1%. We therefore place a SELL rating on the counter.
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