Vanguard Markets | Monday, March 02, 2015 | Issue 031
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We therefore highlight that lower oil prices coupled with lower oil production volumes and its attendant impact on macro-economic indicators remain significant risk to growth in the near term. - Dunn Loren Merrifield, February 24, 2014
EARNINGS IN CONTEXT
Nestlé Nigeria gets leniency for bland 2014 results
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ND THEY ARE OFF. Sort of. The current earnings season has begun, and it is not with the thunder of hooves in full gallop. Disappointed? Look again. On the spectator stands, investors are not booing in reaction to the slowmo take-off. Instead, there are sighs of relief. It could have been worse, they say in hushed tones. Look on the bright side some counsel. The dividend trickled through so things cannot be so bad. If the benevolent commentary from analysts is anything to go by blue chip companies will go unpunished for uninspired 2014 results. Consider them first-time offenders. Besides, their share prices have taken enough beating as it is from the selloff in recent months. How much lower should stock prices prostrate before investors begin to cause selfinflicted injuries? Welcome to the new normal where flat is the new growth for favoured companies with attractive long-term investment theses. Nestlé Nigeria presents the classic case of a company that enjoys the market’s benefit of doubt.
Bellwether stock in stormy weather The back story of Nestlé Foods Nigeria’s 2014 results represents
Earnings per share were flat at N27.90 per share, as revenue grew 8 per cent. Gross margins scaled over at 42.7 per cent, while operating profit rose by 5 per cent. There was an imperceptible drop in the operating margin to 20.4 per cent from 20.9 per cent in the previous year. The big shocker was a leap in net finance costs by 66 per cent to N4.75 billon. This was caused by losses on a US Dollar denominated inter-company loan due to the 14.7 per cent decline in the naira-dollar exchange rate during the year. In their diagnosis, Nestlé’s results were assailed by the insecurity in the north-eastern part of the country,
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221.7728
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the challenging environment perfectly. The company’s growth slumped to its lowest level in 17 years, write analysts at CSL Research.
If the benevolent commentary from analysts is anything to go by blue chip companies will go unpunished for uninspired 2014 results
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Earnings season is in full swing on the NSE. 2014 was a bumpy year especially for companies that depend on consumers’ discretionary income to thrive. Investors are not expecting miracles to happen this time. All they want is prudent management through the turbulence, which some analysts anticipate would last for two years. The tighten seatbelt lights have come on. A
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Street event for relaunch of Nestlé Maggi Chicken. Once the most popular stock cube in Nigerian cooking pots its market share has dropped to around 35% due to competition from Unilever’s Knorr and Royco brands as well as to Promasidor’s Onga.
growing competition, and weakened consumer spending power are to blame. To these three leg chains will now be added the effects of a devalued currency, a rise in the cost of living due to planned tariff hikes for electricity and used cars, as well as the possible reduction of the subsidy on petrol in 2015. Its lacklustre results notwithstanding, Robyn Collins, food and beverages analyst at Renaissance Capital describes Nestlé’s 2014 performance as ‘a credible result in the current environment’. For aficionados of Monopoly, the board game, this has got to be the equivalent of Pass GO collect $200.
Nestlé’s selling points Nestlé has a handful of positives going for it. It is the leading food and beverages company in the country. This fact alone earns the stock automatic permanent residency status in most investors’ portfolios. It has a well-diversified brand portfolio; however, just four (Golden Morn cereal, Milo Powder, Maggi Mix’py, and Maggi cube) contribute 80 per cent to revenues. The company benefits from extensive local sourcing of raw materials, where its size confer huge
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31.5003
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0.3316
0.36 0.35 0.34 0.33 0.32 Fr
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Central Rate
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208.0919
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52.6596
DANISH KRONE
29.6979
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279.3045
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FIXED INCOME & FOREX
Source: FMDQ