Is Nestle richly valued at 51x PE Ratio?

Company Background

Sourced from thestar.com.my

With a history spanning 106 years in Malaysia, Nestlé Berhad has seen substantial growth over these years and was publicly listed on the KLSE now known as Bursa Malaysia Berhad on 13 December, 1989.

Today, the company manufactures its products in 7 factories and employs more than 5000 people. It manufactures and distributes more than 300 Halal products in the region with many trusted household brands such as MILO, NESCAFE, MAGGI, NESPRAY and KIT KAT.

Financial Highlights

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

Utilizing ShareInvestor’s WebPro, we can get a quick glance into the historical financials of Nestle. Its net profit margins are relatively stable at 11.9% and increasing marginally over the past decade.

In addition, revenue and net profits have also grown steadily over the past decade. Profit attributable to Shareholders (green bar) has surged 68.3% from MYR 391.4 million in FY2010 to MYR 658.9 million in FY2018.

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

That said, when we zoom into the financial ratios chart above, we see that revenue and earnings year-on-year growth have trickled to a low of 4.8% and 2.0% respectively. This is a huge contrast from its 16.7% revenue growth during the year 2011.

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

Nestle Berhad’s P/E ratio has also gone through the roof and currently stands at 51.8x trailing 12months March 2019. This is also a big jump compared to the range of 22 – 30x P/E ratio from FY2010 to FY2017.

Nestle Berhad’s Dividend Analysis

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

Next up, we dive into the dividend analysis of Nestle Berhad. From the chart above, we can see that the company has been paying out close to 100% of profits in the past 10 years (Dividend pay-out ratio <1x)!

Dividends per share have also increased in tandem with the higher profits, up around 70% from 165 sens in FY2010 to 280 sens in FY2018.

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

Another chart allows me to glimpse through the dividend yields on a year by year basis too. In which, the yields have declined from 4.36% in FY2010 to around 2% in FY2018 mainly due to the share price increase.

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

Last but not least, we can check out the specific record and payable dates for the dividend payments. From the above dividend pay-out chart, we noticed that Nestle Berhad usually records its dividends in Jun, Sep and Dec.

As a rule of thumb, you would need to own the company shares before the record date to be entitled for the dividends.

Analyst Consensus Estimates

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

Employing the Analyst Consensus Tool, we are able to see that 13 analysts have covered Nestle Berhad and the average consensus recommendation comes up to be “Underweight”.

Their mean target price is MYR 128.26, which translates to a 13.4% downside based on its share price of MYR 148.1 at the time of writing.

As of 10 Jun 2019 | Sourced from ShareInvestor’s WebPro

Lastly, based on the above chart, analyst coverage of Nestle Berhad have increased from 8 ratings to 13 ratings over the past 2 years from Jun 2017 to Jun 2019.

The sell ratings (denoted by the red bars) have also become more prevalent after the company’s surge in share price (blue line) during early 2018.

Happy investing!

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