Tuesday, April 21, 2015

Nestle: Another bumper quarter!

Results Update

For QE31/3/2015, Nestle's net profit increased 91% q-o-q or 2% y-o-y to RM187.9 million while revenue rose by 15% q-o-q or unchanged y-o-y at RM1.278 billion. This positive trend is mainly driven by the strong domestic performance linked to the successful NestlĂ©’s "Lebih Nilai, Lagi Hebat" campaign that was launched at the end of February 2015. The higher net profit was the result of a combination of  higher turnover, favourable input costs, and timing of fixed expenses.


Table: Nestle's last 8 quarterly results


Chart 1: Nestle's revenue, profits & profit margins for last 32 quarterly results


Chart 2: Nestle's dividend & payout ratio for last 32 quarterly results

Valuation

Nestle (closed at RM74.48 yesterday) is now trading at a PE of 31 times (Based on lats 4 quarters' EPS of 237 sen). At this multiple, Nestle is deemed overvalued. Its redeeming point is its attractive dividend yield of 3.2%.

Technical Outlook

Nestle broke above the horizontal resistance at RM69 in January this year. Despite possible near term weakness, the long-term outlook for Nestle looks promising.

 
 Chart 3: Nestle's weekly chart as at Apr 20, 2015 (Source: ShareInvestor.com)


Chart 4: Nestle's monthly chart as at Apr 20, 2015 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance, attractive DY (albeit high PER) & mildly positive technical outlook, Nestle would remain a good stock for long-term investment. Its downside is its high PER which may cap its upside potential.


Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Nestle.

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