Nestlé parent buys more stake for Rs. 354 m in Lankan entity

Nestlé S.A. last week bought 295,078 shares in the Lankan venture, increasing its stake to 91.76% or 49.3 million shares.

During the week, Nestlé saw 332,527 shares change hands via 751 trades for Rs. 403 million. A big block of 295,385 was done at Rs. 1,200 each. It closed the week up Rs. 75.50 to Rs. 1,300.75 with an intra-week high of Rs. 1,400 though on Friday it dipped by 1% or Rs. 12.75. Nestlé’s 52-week highest price is Rs. 1,650 and the lowest was Rs. 950.

In June, Nestlé S.A. acquired 211,410 shares bringing the stake to 91.21%. Public holding percentage of Nestlé Lanka is 8.79% held by 5,908.

Speculating a de-listing as well as given its high dividend yield, some high net worth investors have renewed focus on Nestlé. First Capital last week lowered Nestlé’s fair value for 2021 to Rs. 1,450 (previous target price Rs. 1,550) and 2022 to Rs. 1,550 (previous target price Rs. 1,650) whilst maintaining ‘buy’.

Nestlé recorded a growth in earnings for 2Q2021 up by 41.9% YoY to Rs. 844.3 million compared to Rs. 594.9 million recorded in 2Q2020.

“The escalation in profit is mainly attributable to the surge in revenue by 22.4% to Rs. 10.1 billion as opposed to Rs. 8.3 billion in 2Q2020, aided by the increase in prices pertaining to some of its popular products due to the continuous pressure stemming from the increase in raw material prices amidst the stagnant growth in volumes,” First Capital said.

Accordingly, it has squeezed GP margins estimate to a range of 33%-34% (previously at 36%) for 2021 and 2022. “Thus, we are reinstating our earnings forecast while revising the profitability targets for 2021 and 2022 to Rs. 4.1 billion and Rs. 5.2 billion, respectively,” First Capital added.