Nestle: Top-line & bottom-line declined

Results Update

For QE30/6/2015, Nestle's net profit dropped 34% q-o-q but rose 5% y-o-y to RM124 million while revenue dropped by 11% q-o-q & 10% y-o-y at RM1.143 billion. Revenue dropped due to slower sales as a result of weaker consumer spending- especially after the implementation of GST in April. The lower net profit in comparison to the prior quarter was the result of a combination of lower turnover and higher investments in marketing. These investments in marketing improved the market share situation and will help the Group to be in a better position in the second half of 2015.


Table: Nestle's last 8 quarterly results


Chart 1: Nestle's revenue, profits, profit margins & dividend for last 33 quarterly results

Valuation

Nestle (closed at RM71.92 yesterday) is now trading at a PE of 30 times (Based on lats 4 quarters' EPS of 239 sen). At this multiple, Nestle is deemed overvalued. However, Nestle has a decent dividend yield of 3.3%.

Technical Outlook

Nestle is still in an "uptrend" with possible support at RM70.00-72.00.


Chart 2: Nestle's monthly chart as at Aug 12, 2015 (Source: ShareInvestor.com)

Conclusion

Based on gsatisfactory financial performance and mildly positive technical outlook, Nestle retains the rating of HOLD. Its upside is limited due to its high valuation.

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.