Nestle: That's All?

Results Update

For QE31/12/2017, Nestle's net profit rose 12% q-o-q or 99% y-o-y to RM133 million while revenue dropped by 3% q-o-q but rose by 3% y-o-y at RM1.28 billion. Revenue rose y-o-y due to 4.5%-increase in domestic sales, which was partially offset by slowdown in export sales. PBT rose 14.3% y-o-y due to the continuation of its robust and effective cost management as well as effective and efficient marketing-trade investments.

All in all, Nestle's latest result was a disappointment for me after its spectacular rally in the past 4 months- until I read this morning papers (here, here and here). If you have looked carefully at the Table 1 below, you could be amused by the idea that Nestle had a gang-buster quarter. I have to give credit to Nestle's investor relation team for such a good write-up. The choice of the 2 emboldened phrases above has certainly helped. For those who used to follow FMCG MNCs like Nestle or BAT, you will be familiar with the coincidence of a jump in profits whenever advertising & promotional expenses declined- a simple "trick". What happened in Nestle's results for QE31/12/2017 & QE31/12/2016 were a drop in advertising & promotional expenses in the period in 2017 ( boost profits) compared to a jump in advertising & promotional expenses in 2016 (depressed profit). If you are still not convinced, you can look at Table 2 where I compared the last 2 years results as well as the Graph below. 


Table 1: Nestle's last 8 quarterly results


Table 2: Nestle's last 2 years' results compared

Graph: Nestle's revenue, profits, profit margins & dividend for last 44 quarterly results

Valuation

Nestle (closed at RM121.50 yesterday) is now trading at a PE of 44 times (based on lats 4 quarters' EPS of 275 sen). If this is not expensive, I don't know what expensive means.

Technical Outlook

Nestle is still in an uptrend since the Asian Financial Crisis ended in 1999.


Chart: Nestle's monthly chart as at Feb 20, 2018 (Source: ShareInvestor.com)

Conclusion

Based on satisfactory financial performance and bullish technical outlook, Nestle is a good stock to invest in. However, its valuation is very demanding and it deserves a rating of UNDER-PERFORM or TAKE PROFIT.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.