Consumer Goods | Switzerland
WSD Target Price
Annualized Return Since Publication
Target Equity Value (Δ)
Source: Bloomberg end of day market data; not adjusted for dividends (April 9, 2019).
Returns assume a long investment position on the date that WSD Capital Management published its thesis, and an exit on the date that the WSD Target Price is realized.
Returns do not reflect any fees, expenses or taxes.
The returns are hypothetical and do not reflect the actual results of WSD Capital Management’s investment activities, nor is it necessarily indicative of future results of WSD Capital Management’s investment activities.
Nestlé (“Nestlé”) is the world’s leading nutrition, health and wellness company with a portfolio of more than 2,000 global and local brands in 189 countries.
WSD Capital Management announced its investment in Nestlé on March 21, 2018. The company operates across a number of attractive, high-growth food and beverage categories, such as coffee, pet care, infant nutrition and bottled water. Coffee and creamers generate around CHF 17 billion in revenues for Nestlé or approximately a fifth of its total turnover.
In its full-year results for 2017, Nestlé reported organic growth of 2.4 percent, with 1.6 percent of real internal growth (RIG) and pricing of 0.8 percent, which is the lowest growth in more than two decades, signaling that a turnaround under new CEO Dr. Mark Schneider is still very much a work-in-progress.
We believe the slowdown in growth has reached an inflection point as management continues to invest selectively in fast-growing categories and implement active portfolio management as the food sector faces a challenge from smaller brands and changing consumer tastes and habits.
Shares remain attractively priced relative to what the company could earn in 2020 and beyond as it aims to re-accelerate organic sales growth to mid-single digits and adopts a margin target of 18.5 percent by 2020. We expect the company to accelerate its share buyback program of up to CHF 20 billion instead of backloading it in 2019 and 2020.
Nestlé’s 23 percent stake in L’Oréal is equivalent to more than $28 billion, or roughly 11 percent of Nestlé’s market capitalization as of March 16, 2018. The shareholders agreement between Nestlé and L’Oréal’s Bettencourt family is due to expire on March 21, 2018.
Nestlé’s Board of Directors has decided not to renew this agreement in order to maintain all available options for the benefit of Nestlé’s shareholders. We are optimistic that Nestlé will monetize its shareholding in L’Oréal, which can be achieved with limited tax or other consequences to enhance the company’s return on equity and meaningfully increase its share value in the long run.
We exited our investment in Nestlé in April 2019.