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
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.
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)
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.
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