Nestle oct.20,2018

Nestle is the worlds biggest food company with expected revenues of more than 90 bn CHF covering plenty of fields of food products spread very even over the whole globe. Nestle is a very profitable company with an estimated net profit 12.3 bn CHF 2018. 

A motivation to buy Henkel is the slow but steady growing business. 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. 

Chances & Risks

Nestle is compared to similar companies with a PE of 21 neither cheap nor expensive. The dividend yield of 3% is far above the yield of CHF bonds.   

Nestle is a company to stay in for retirement. The strong brands and cash flow, a regional well balanced business, the FMCG as such make it one of the most stable company of the world. I assume that Nestle will grow organic in the next couple of years with 1 - 3% in CHF.

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 swiss R&D centers are successful in optimizing taxes but usually seem to act somewhere 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 14 years ago Nestle implemented an ERP program that pressed the whole company in very rigid unflexible structures.

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.

Some observations

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. 

Source: Nestle 9 month report. 

Some Data

number of shares: 3’063’000’000 

An estimated profit/share (2018) of 3.89 CHF actually a PE of 21. 

Organic growth of 2.8%, with 2.3% real internal growth (RIG) and pricing of 0.5%, in line with our expectations.

Dividends: 23 years of consecutive increases in CHF. Dividend estimate (2018) 2.5 CHF -> a 3% yield. 

Share buyback: 20 bn CHF over 3 years to be completed by June 2020

Some references

Nestle investor relations. 

 

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