Nestlé looks well placed for 2010
Posted by Turgut Ziyal on Thursday, February 25, 2010
Under: food news
The world's biggest food group Nestle looks well placed to show balanced growth between volume and price in 2010 and outperform its two arch European rivals in a year of likely sluggish economic recovery.
29 analysts out of 39 surveyed by Reuters see Nestle shares as a "buy" or "strong buy" and say its shares look cheap compared to its two rivals based on its forecast performance and its bumper returns from dividends and share buybacks.
While Unilever and Danone had to cut prices in the latter half of 2009 to get underlying sales growth, Nestle saw growth from higher prices and volumes, placing it at an advantage if commodity prices start rising again in the second half of 2010.
Analyst Andrew Wood at brokers Sanford Bernstein expects 2010 will be a strong year for Nestle as it raises media spending, commodity prices start subdued and it faces easier comparisons after a tough time in the early months of 2009. "We believe Nestle is the strongest and most balanced company in the European food group. We have seen excellent operating results from Nestle in recent years...and we expect this to continue into the medium term," he said.
Nestle's food and beverage underlying sales grew 3.9 percent in 2009, ahead of Unilever's 3.5 percent and Danone's 3.2 percent.
Analysts say one of the main worries with Nestle is poor communication with investors, highlighted by an ambiguous acquisitions strategy message and illustrated by a lack of clarity over its stake in Paris-based L'Oreal.
Nestle says it budgets 2-3 billion Swiss francs ($1.9-2.8 billion) for acquisitions each year but then bought Kraft's U.S. frozen pizza business for $3.7 billion in January, and with a bumper $28 billion to come from selling off its remaining stake in U.S. eye care group Alcon it is unclear how it will use its new-found excess cash.
Nestle has a 30 percent stake in the world's biggest cosmetics group L'Oreal but can not raise this until six months after the death of Liliane Bettencourt, the 87-year-old daughter of the firm's founder and owner of a 31 percent stake.
Many analysts do not see the logic of Nestle buying a cosmetics group and would like clarity from Chief Executive Paul Bulcke over his intentions other than to say Nestle does not "require transformational deals".
For 2010, Nestle says sales growth will beat 2009's 3.9 percent, with Charlie Mills at Credit Suisse looking for 4.4 percent made up of 3.2 percent from volume and 1.2 percent from price with EBIT (operating) margins up 0.3 points at 12.4 percent.
"That Nestle still has a bit of residual pricing is also a positive and testament to the strength of the group's brand equity.....The group should enjoy good sales and margin momentum in 2010," he said.
Analysts say with commodity price inflation likely to return in the second half of 2010, it will be more difficult for price-cutting groups to start raising prices.
Nestle's 4-percent plus 2010 target compares with Danone looking for at least 5 percent growth, boosted by 2009's price cuts, while Unilever's Chief Executive Paul Polman said he will be doing well to duplicate 2009's 3.5-percent growth in 2010.
UBS analyst Alan Erksine says when Nestle completes its Alcon sale at the end of the third-quarter, the Swiss group will have net cash of around 8 billion francs and a more appropriate valuation would come from looking at Enterprise Value/Earnings before interest, tax, depreciation and amortisation.
"We estimate the ex-Alcon, Nestle 2010 EV/EBITDA multiple is 8.9 times, making it one of the lowliest valued large-cap consumer stocks globally and means it trades on a significant discount to Unilever and Danone," he said.
He believes this is anomalous given Nestle can grow at 4-6 percent ex-Alcon, has strong brands and 35 percent of sales in fast growing emerging markets, compared to Danone and Unilever which trade on around 10 times EV/EBITDA 2010.
Analyst Deborah Aitken at brokers Bryan Garnier highlighted last week's strong 2009 results with profit margins up despite higher media spend, a dividend up 13 percent worth 5.6 billion francs and 10 billion francs of share buybacks in 2010."These results highlight that Nestle is a premium food and beverage company and deserving of a premium to peers. Cash return at 15.6 billion francs for 2010 will be the best yet at Nestle," she added.
Source: Reuters via flex-food-news.com
29 analysts out of 39 surveyed by Reuters see Nestle shares as a "buy" or "strong buy" and say its shares look cheap compared to its two rivals based on its forecast performance and its bumper returns from dividends and share buybacks.
While Unilever and Danone had to cut prices in the latter half of 2009 to get underlying sales growth, Nestle saw growth from higher prices and volumes, placing it at an advantage if commodity prices start rising again in the second half of 2010.
Analyst Andrew Wood at brokers Sanford Bernstein expects 2010 will be a strong year for Nestle as it raises media spending, commodity prices start subdued and it faces easier comparisons after a tough time in the early months of 2009. "We believe Nestle is the strongest and most balanced company in the European food group. We have seen excellent operating results from Nestle in recent years...and we expect this to continue into the medium term," he said.
Nestle's food and beverage underlying sales grew 3.9 percent in 2009, ahead of Unilever's 3.5 percent and Danone's 3.2 percent.
Analysts say one of the main worries with Nestle is poor communication with investors, highlighted by an ambiguous acquisitions strategy message and illustrated by a lack of clarity over its stake in Paris-based L'Oreal.
Nestle says it budgets 2-3 billion Swiss francs ($1.9-2.8 billion) for acquisitions each year but then bought Kraft's U.S. frozen pizza business for $3.7 billion in January, and with a bumper $28 billion to come from selling off its remaining stake in U.S. eye care group Alcon it is unclear how it will use its new-found excess cash.
Nestle has a 30 percent stake in the world's biggest cosmetics group L'Oreal but can not raise this until six months after the death of Liliane Bettencourt, the 87-year-old daughter of the firm's founder and owner of a 31 percent stake.
Many analysts do not see the logic of Nestle buying a cosmetics group and would like clarity from Chief Executive Paul Bulcke over his intentions other than to say Nestle does not "require transformational deals".
For 2010, Nestle says sales growth will beat 2009's 3.9 percent, with Charlie Mills at Credit Suisse looking for 4.4 percent made up of 3.2 percent from volume and 1.2 percent from price with EBIT (operating) margins up 0.3 points at 12.4 percent.
"That Nestle still has a bit of residual pricing is also a positive and testament to the strength of the group's brand equity.....The group should enjoy good sales and margin momentum in 2010," he said.
Analysts say with commodity price inflation likely to return in the second half of 2010, it will be more difficult for price-cutting groups to start raising prices.
Nestle's 4-percent plus 2010 target compares with Danone looking for at least 5 percent growth, boosted by 2009's price cuts, while Unilever's Chief Executive Paul Polman said he will be doing well to duplicate 2009's 3.5-percent growth in 2010.
UBS analyst Alan Erksine says when Nestle completes its Alcon sale at the end of the third-quarter, the Swiss group will have net cash of around 8 billion francs and a more appropriate valuation would come from looking at Enterprise Value/Earnings before interest, tax, depreciation and amortisation.
"We estimate the ex-Alcon, Nestle 2010 EV/EBITDA multiple is 8.9 times, making it one of the lowliest valued large-cap consumer stocks globally and means it trades on a significant discount to Unilever and Danone," he said.
He believes this is anomalous given Nestle can grow at 4-6 percent ex-Alcon, has strong brands and 35 percent of sales in fast growing emerging markets, compared to Danone and Unilever which trade on around 10 times EV/EBITDA 2010.
Analyst Deborah Aitken at brokers Bryan Garnier highlighted last week's strong 2009 results with profit margins up despite higher media spend, a dividend up 13 percent worth 5.6 billion francs and 10 billion francs of share buybacks in 2010."These results highlight that Nestle is a premium food and beverage company and deserving of a premium to peers. Cash return at 15.6 billion francs for 2010 will be the best yet at Nestle," she added.
Source: Reuters via flex-food-news.com
In : food news
Tags: nestle
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