Nestle update July 27th, 2023
CH 003 886 335 0
Nestle NESN.VX is the worlds biggest food company with revenues of 94 bn CHF covering plenty of fields of food products spread very even over the whole globe. Nestle is a very profitable company with a net profit 9 bn CHF 2022.
A motivation to buy Nestle is the slow but steady growing business and dividend. It is a share for retirement.
This is not a recommendation or proposal to do anything. It is my private personal opinion. I`m not independing as I own a position of Nestle shares and I was working for Nestle many years till more than a decade ago. The information below are best guesses it is not guaranteed.
Chances & Risks
In 2022 Nestle achieved an organic growth of 8.3%. In H1 Nestlé achieved an organic growth of 8.7% below the price increases. That means volumes are decreasing. That means Nestle is adapting well to the global inflation but looses volume. The RIG (real internal growth) without pricing is stagnating. That means Nestle inflate its numbers with the inflation. It is a protection against inflation but not a growth story.
Nestle is compared to similar companies with a profit/share of perhaps 4 CHF equivalent to a PE of 30 (120 CHF) expensive. The dividend yield of 2.4% is below that of other FMCG companies. Inflation will increase the nominal growth of Nestlé and will let Nestle look much more beautiful in the next years.
The high dividend 8bn plus the buyback program added to a shareholder return of 18 bn CHF 2022 far above the free cash flow of 6.6 bn CHF. This is by no means sustainable. Net debt is increasing constantly. Brands are expensive to build up or to buy (see Starbucks) but for far less to maintain. If brands are not maintained well brands are loosing their value. From the business logic it would be preferable for Nestle to cut the share holder return by half and to invest more in the brands. I assume that the Nestle management is not strong enough to resist activist shareholders.
Nestle communicates more honest and decisions are driven more by logic than that of other big FMCG companies.
The main risk of Nestle is its tendency to beaucracy, complex structures and overhead. Nestle acts slower compared to smaller sized, leaner European companies as Müller Milch, Hipp or Krueger. Nestle gave up plenty of brands and products as these brands were passed by smaller more agile competitors. In developing countries Nestle profits from its superior know how, the transfer of products and brands in these markets.
The big Nestlé R&D centers are successful in optimizing taxes but usually seem to act far away from reality. Successful new products were developed by coincidence only if at all. As a result Nestle has to buy in successful brands as Starbucks coffee to renew the portfoilio. Successful brands are very expensive. Some 24 years ago Nestle implemented an ERP program that pressed the whole company in very rigid unflexible structures.
Some activist shareholders are pressing the company to increase profitability increasing margins further selling its Loreal(1) share. This initiative is not really helpful. It may press the management to look for short term profitability but does not help in the long run. The poeple keep their food preferences from their youth during lifetime. Thus it makes sense to develop brands for a long term success.
All in all Nestle needs to find structures that allows to improve agility and flexibility and get rid of the big overhead. During the Maucher era in the 90ies Nestle was less centralized. The countries and divisions had plenty of room for decision. The group was directed by an informal Swiss expat network.
The number of registered shares .... Outstanding June 30th 2023 2657 M shares.
The Group holds 107 621 021 shares in L’Oréal (whose ultimate parent company is domiciled in France), the world leader in cosmetics, representing a 20.1% participation in its equity. At December 31, 2022, the market value of the shares held amounts to CHF 35.4 billion that is below the net debt.
In 2021, divestments in L’Oréal relate to 22.26 million shares sold to L’Oréal for 9276 MCHF and a profit of 7184 M CHF (vs. book value). Cash Flow and profit are effected by this sell out.
The business of Nestle is very well balanced over the whole planet. It covers many food brands. That gives Nestle the highest stability of nearly all companies of the world.
Within the last decades Europe lost its once dominant share in favor to North and South America.
Nestle is diversified as well in product groups
Source: Nestle Full Year 2021
Data from Market Screener (2)
|Nestlé SA||93 053 584||3,04%|
|The Vanguard Group, Inc.||82 039 186||2,68%|
|Norges Bank Investment Management||74 743 612||2,44%|
|UBS AG (Investment Management)||49 377 646||1,61%|
|Capital Research & Management Co. (World Investors)||46 106 955||1,51%|
|Capital Research & Management Co. (Global Investors)||42 075 931||1,37%|
|BlackRock Fund Advisors||41 668 324||1,36%|
|Third Point LLC||40 000 000||1,31%|
|Massachusetts Financial Services Co.||30 989 560||1,01%|
|Zürcher Kantonalbank (Investment Management)||28 706 688||0,94%|
(7) 2019 October 18 https://www.handelszeitung.ch/unternehmen/nestle-auf-wachstumskurs-20-milliarden-fur-aktionare?utm_source=Handelszeitung+Newsletter&utm_campaign=1cb5cfbd21-LUNCH_TOPICS_2019_10_17&utm_medium=email&utm_term=0_c1505081ea-1cb5cfbd21-92780129
(5) 2019 April 09 ttps://www.handelszeitung.ch/unternehmen/nestle-kooperiert-mit-britischer-tierklinik-gruppe?utm_source=Handelszeitung+Newsletter&utm_campaign=95587210e3-LUNCH_TOPICS_2018_12_03_COPY_01&utm_medium=email&utm_term=0_c1505081ea-95587210e3-92780129
(4) 2019 Feb 19 https://www.nestle.com/asset-library/Documents/Library/Presentations/Sales_and_Results/2018-full-year-results-investor-presentation.pdf
(3) 2019 feb. 14 https://www.nestle.com/asset-library/documents/library/presentations/sales_and_results/2018-full-year-results-press-conference-presentation.pdf
Nestle investor relations.
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