PETALING JAYA: Nestle (M) Bhd’s focus on enhancing its supply chain and operations through sustainable practices could add value to the group as the market becomes more appreciative of environmental, social and governance (ESG) investment.
For now, analysts have kept an “underperform” call on Nestle.
“Nestle embraces the concept of creating shared value (CSV) which looks beyond the conventional needs of corporate social responsibility and duty.
“Essentially, the group strives to maximise both fundamental values and also long-term intrinsic values which might be of material impact eventually.
“Arguably, the stock’s high valuations may seem overly demanding to some, especially since its highly-saturated presence in many food spaces might be an indication of lesser growth opportunities.
“That said, we hold the key initiatives highlighted in this report in high regard as they might serve as a future cornerstone for other large players in the F&B industry to step up to.
“Should this pan out in accordance with Nestle’s pipeline, it is possible that investors could appreciate the stock more for its sustainable efforts and the value that it brings to society, ” Kenanga Research said in a report.
Given its extensive range of product line-ups, it is estimated that Nestle has a 16% market value share in the entire food business in the country.
The group has set an ambitious goal to be plastic-neutral by 2025 and is working towards net zero footprint through recycling, reusing and recovering waste efforts, in line with Nestle SE’s efforts to be carbon neutral by 2050.
Another aspect of its CSV comes in the form of programmes to train and educate contract farmers on sustainable agriculture.
This is in addition to equipping and providing them with financial and technical assistance in improving crop yields in an environmentally efficient manner.
On top of improving the livelihood of local farmers by elevating their income, this has also helped Nestle secure consistent supply of raw materials into their value chain.
Kenanga noted that the group’s investment of resources and talent instils joint value creation which could result in deeply rooted environmental and economic benefits.Kenanga pinned its target price for Nestle at RM129.30 based on a 46 times price-earnings-ratio of FY21E.
“Ultimately, while sustainability is often viewed as a discretionary responsibility, we believe that it is seeing sprouting recognition and acceptance in the investment community as a key priority. In other words, those who can, should, ” it said.