Nestlé SA – Value Analysis (LONDON:0QR4) : December 21, 2017

Capitalcube gives Nestlé SA a score of 66.

Our analysis is based on comparing Nestlé SA with the following peers – Deoleo, S.A., Nestle S.A., Orkla ASA and Rhodes Food Group Holdings Ltd. (OLE-ES, NESR-DE, ORK-NO and RFG-ZA).

Investment Outlook

Nestlé SA has a fundamental score of 66 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative outperformance over the last year has faded more recently.
  • It currently trades at a Price/Book ratio of (4.16).
  • The market expects 0QR4-GB to grow at about the same rate as the peers and to maintain the median returns it currently generates.
  • 0QR4-GB‘s relative asset efficiency and net profit margins are both around the median level.
  • Compared with its chosen peers, changes in the company’s annual earnings are better than the changes in its revenue, implying better than median cost control and/or some economies of scale.
  • Over the last five years, 0QR4-GB‘s return on assets has declined from above median to about median among its peers, indicating declining relative operating performance.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • While 0QR4-GB‘s revenues growth has been below the peer median in the last few years, the market still gives the stock a P/E ratio that is around peer median and seems to see the company as a long-term strategic bet.
  • The company’s capital investment seems appropriate for a business with peer median returns.
  • 0QR4-GB has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

0QR4-GB has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 8.91% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 10.69%), and a well-cushioned interest coverage level of 18.88x, 0QR4-GB can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 4 peers for the company have an outstanding debt balance.

0QR4-GB has maintained its Quick & Able profile from the prior year-end.

  • 0QR4-GB‘s interest coverage is its lowest over the last four years and compares to a high of 28.48x in 2014.
  • While its interest coverage decreased to 18.88x from 27.06x (in 2015), its peer median increased during this period to 18.88x from 9.58x.
  • Interest coverage fell 17.48 points relative to peers.
  • 0QR4-GB‘s debt-EV is similar to last year’s low of 8.61% and remains below the 2013 high of 13.10%.
  • Though its debt-EV has remained relatively stable at 8.91% compared to 2015, its peer median has decreased to 10.69% from 11.57% during this period.
  • Relative to peers, debt-EV rose 1.19 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Deoleo, S.A. 73.88 2.16 0.1 -3.3
Nestle S.A. 8.91 0.79 18.88 55.36
Orkla ASA 10.69 2.27 23.68 66.57
Rhodes Food Group Holdings Ltd. 18.86 1.97 4.98 29.11
Nestle S.A. 8.91 0.79 18.88 54.95
Peer Median 10.69 1.97 18.88 54.95
Best In Class 8.91 2.27 23.68 66.57

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Company Profile

Nestlé SA is a nutrition, health and wellness company, which manufactures, supplies and produces prepared dishes and cooking aids, milk-based products, pharmaceuticals and ophthalmic goods, baby foods and cereals. The company products portfolio include powdered and liquid beverages, water, milk products and ice cream, nutrition and health science, prepared dishes and cooking aids, confectionery, and pet care. It operates through the following segments: Zone EMENA, Zone Americas, Zone Asia, Oceania & Africa, Nestlé Waters, Nestlé Nutrition, and Other. Nestle was founded by Henri Nestlé in 1866 and is headquartered in Vevey, Switzerland.

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