NESTLE PLC January 21, 2009

Company Description RECOMMENDATION: HOLD Nestlé Nigeria Plc is one of the leading nutritional companies in Nigeria. Sales in 2007 were over N44 billion, with net profit of N5.4 billion. It belongs to the Nestlé Group, one CURRENT PRICE: NGN 172.78 (20/1/09) of the World’s foremost nutrition, health and wellness company headquartered in Swit- 12 Mth. TARGET PRICE: NGN 163.16 zerland. Nestlé Nigeria’s products are targeted at four segment of the Nigerian market: Baby Food, Bottled water, Breakfast cereals and coffee & beverages. The company’s top FISCAL YEAR END: DECEMBER product range include Cerelac, , , Nescafe, and Nestle Pure life bottled water. NSE symbol Nestle Nestlé adheres to a comprehensive set of business principles that reflect both the com- pany’s commitment to long-term successful business development and the necessity to Sector Food and Beverages improve short-term results. In a bid to stimulate industrial growth within the country, YTD Return -4.72% the company has a policy to source over 75% of its raw material locally; this initiative Year High N191.44 helps to empower local farmers and suppliers. Year Low N181.87 Year Average N186.66 With a strong market share in the food and beverage industry, Nestlé is positioned to Shares Outst. (Thousands) 660,546 continue to enjoy steady growth in Nigeria. Market Cap. (Millions) N114,129.14 Valuation Summary Median Traded Volume 31,152 Our target price for Nestle is based on two valuation methodologies; the Absolute Value method and the Relative Value method. Recent Financials On a relative value basis, Nestle is trading at a 23.24% discount to its industry’s trailing Q3 2008 Q3 2007 % Change 12-month Price-to-Earnings ratio of 20.40x yielding a price of NGN 191.26. Turnover 37.736 31.294 20.59%

Based on absolute value obtained from our Discounted Cash Flow (DCF) and Residual PBT 8.970 7.166 25.17% Income (RI) models, we derive an average price of NGN 135.05. Our target price of NGN 163.16 is an average of the two methodologies. Taxes 2.602 2.284 13.92%

Outlook PAT 5.494 4.882 12.54% Our recommendation is to be neutral in our weighting of Nestle in a diversified portfo- lio of equities over a one year investment horizon. Ratios Nestlé's prospects in the long-run will be boosted by the increasing demand for its 12M EPS 11.03 products and a planned capacity expansion that will be completed in the next few 12M P/E 15.66 years. With Nestle’s small floats, its shares tend to be less volatile in the stock market; hence this explains why the company’s stock outperformed the NSE all share index in 12M P/BV 18.30 2008. Current Div Yield 4.75% We reckon that the company faces strong competition from its peers and also from imported substitutes. Rising cost of raw materials and infrastructural deficit in Nigeria ROA 25.61% could further depress the company’s margins going forward. ROE 87.26%

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Peer Analysis

NESTLE PZ FLOUR MILLS DANGOTE FLOUR OPERATING PROFIT MARGIN 19.07% 11.06% 11.35% 4.03%

ROA 25.61% 8.69% 9.82% 2.64%

ROE 87.26% 13.39% 32.97% 5.10% CURRENT RATIO 1.31 2.29 1.19 1.08 INTEREST COVERAGE - 4.44 5.44 2.01

DIVIDEND PAYOUT 102.32% 44.96% 3.42% -

Nestle Nigeria Plc & NSE All-Share Index (Rebased)

330.00

280.00

230.00

NESTLE 180.00

130.00 *NSE ASI

80.00

* NSE rebased

Disclaimer:

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the pur- chase or sale of any financial instrument. The view and strategies described may not be suitable for all investors. Past performance is not indicative of future returns. The inclusion of past performance figures is for illustrative purposes only. Indices do not include fees or operating expenses and are not available for actual investment. Indices presented are represen- tative of various broad base asset classes. They are unmanaged and are shown for illustrative purposes only.

The analyst(s), who is( are) primarily responsible for this report, certifies(y) that the option(s) on the subject security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this report.

Enquiries should be directed to Kenneth Brai, Charles Ujomu, Chike Obieme and Tochi Okoronkwo on [email protected] OR +234-1-2784130

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