Nes­tle share rat­ing cut at Credit Suisse for first time Since ’05

The Pak Banker - - Company& -

GENEVA: Nes­tle SA, the world's largest food com­pany, had its share rat­ing cut at Credit Suisse for the first time in al­most six years af­ter the stock's out­per­for­mance ver­sus peers caused the bro­ker­age to re­assess its opin­ion.

The rec­om­men­da­tion was low­ered to "neu­tral" from "out­per­form," where it had been since Jan­uary 2005. The shares trade at 17 times profit, a pre­mium to peers, com­pared with a price-earn­ings ra­tio of 12 in 2005, when it was at a dis­count to ri­vals, Credit Suisse an­a­lyst Alex Mol­loy wrote in a re­port.

Nes­tle has less po­ten­tial to im­prove prof­itabil­ity af­ter in­creas­ing its food and bev­er­age op­er­at­ing mar­gin to 13.5 per­cent this year, ex­clud­ing ac­qui­si­tions, from 11.8 per­cent in 2005, Mol­loy wrote.

Credit Suisse es­ti­mates that 40 per­cent of the gain in Nes­tle shares since the March 2002 ini­tial pub­lic of­fer­ing of its Al­con Inc. unit came from the eye­care com­pany. Nes­tle sold its re­main­ing ma­jor­ity stake in Al­con in Au­gust.

"Nes­tle's busi­ness to­day is in ter­rific shape, and there is more to come from it," Mol­loy wrote. "It may be time to draw breath" as the stock trades at a 15 per­cent pre­mium to U.S. and Euro­pean peers, he said.

Nes­tle fell 80 cen­times, or 1.4 per­cent, to 54.95 Swiss francs at 9:42 a.m. in Zurich trad­ing. The stock touched a record 56.90 francs in in­tra­day trad­ing on Nov. 26 and has risen 16 per­cent in the past year, giv­ing a mar­ket value of 191 bil­lion Swiss francs, more than any other Euro­pean com­pany.

Nes­tle shares have gained about 43 per­cent in the past five years, com­pared with a 1.9 per­cent gain in Kraft Foods Inc., the world's sec­ond-largest food com­pany.

Nes­tle, which got $28.3 bil­lion for its ma­jor­ity stake in Al­con, will prob­a­bly re­turn most of the cash it has ac­cu­mu­lated through buy­backs and div­i­dends over the com­ing three years, Mol­loy said in the re­port.

The KitKat maker may spend 7.5 bil­lion francs a year on buy­backs and 2 bil­lion francs to 3 bill i o n francs an­nu­ally on ac­qui­si­tions, which would leave Nes­tle with net debt of about 19.5 bil­lion francs at the end of 2013, he said.

Nes­tle will prob­a­bly main­tain its near 30 per­cent stake in L'Oreal SA as an ac­qui­si­tion of the cos­met­ics maker wouldn't make "fi­nan­cial or com­mer­cial sense," Mol­loy wrote.

More­over, U.K. con­sumer con­fi­dence un­ex­pect­edly dropped to a four-month low in Novem­ber as loom­ing pub­lic-spend­ing cuts dented Bri­tons' out­look for 2011, a re­port by GfK NOP Ltd. showed.

The in­dex of sen­ti­ment de­clined 2 points to mi­nus 21, the re­search group said in an emailed state­ment in London to­day. Econ­o­mists pre­dicted no change from mi­nus 19 in Oc­to­ber, ac­cord­ing to the me­dian of 13 fore­casts in a Bloomberg News sur­vey. A mea­sure of sen­ti­ment on the econ­omy for the com­ing year fell 2 points to mi­nus 22.

Bri­tain faces the biggest fis­cal squeeze since World War II to tame the record bud­get deficit, prompt­ing the loss of 330,000 pub­lic-sec­tor jobs by April 2015. The Trea­sury's fis­cal watchdog yes­ter­day cut its eco­nomic growth fore­cast for 2011 and said the U.K. faces a "slug­gish" re­cov­ery.

The re­port "is clearly not good news," Nick Moon, man­ag­ing di­rec­tor of GfK NOP So­cial Re­search, said in the state­ment. "What is more wor­ry­ing in this month's fig­ures is that the worst-per­form­ing el­e­ments of the in­dex are those that look to the fu­ture."

A gauge of Bri­tons' views on their per­sonal fi­nances for the com­ing 12 months fell 5 points to mi­nus 7, and a mea­sure cov­er­ing the last year held at mi­nus 13. An as­sess­ment of the coun­try's gen­eral eco­nomic sit­u­a­tion in the last 12 months fell 3 points to mi­nus 46.

A gauge on the cli­mate for mak­ing ma­jor pur­chases fell 2 points to mi­nus 17. GfK NOP con­ducted the sur­vey of 1,999 peo­ple from Nov. 5 to Nov. 14.

The Of­fice for Bud­get Re­spon­si­bil­ity cut its 2011 growth fore­cast for the U.K. to 2.1 per­cent from 2.3 per­cent. The govern­ment watchdog still re­duced its fore­cast for pub­lic-sec­tor job losses from a June es­ti­mate of 490,000 and raised its pro­jec­tion for growth this year to 1.8 per­cent from 1.2 per­cent.

The out­look for the econ­omy has di­vided Bank of Eng­land pol­icy mak­ers, who de­cided this month to leave their bond pur­chase plan at 200 bil­lion pounds ($311 bil­lion) and the key in­ter­est rate at a record low of 0.5 per­cent.

One mem­ber, An­drew Sen­tance, has been call­ing for higher in­ter­est rates since June to stem in­fla­tion, while Adam Posen main­tained a push for a sec­ond month to boost bond pur­chases to stoke growth. -Bloomberg

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