Nestle Plc hits above 12yrs high at N910 per share; likely to face liquidity crisis

Proshare

Wednesday, 20 February 2013; 0647hrs / TheAnalyst
 

Today, Nestle Plc climbed the champions’ ladder by 5.86% of daily gain to maintain market leadership by its share price of N910.00, hitting above its 12years high to attain a new all time high.



 

The stock rode on the back of strong investors’ loyalty and active anticipatory rally to comfortably claim the position of the most expensive (most valuable) stock on the Nigerian bourse.
 

In addition, the outlook in the last 13weeks reveals an impressive rally and active bargain posture to record year-to-date performance of 30.00% gain, outperforming the NSE All Share Index at 18.72% gain. The expectation of impressive corporate earnings and reward also impacted on the sentiments driving this trend.
 

As a result of the bullish trend, its market capitalisation surged from N554.85billion recorded in December 31st 2012 to N721.31billion at close of yesterday’s session. This has continued to strengthen its position among top blue chips with big market capitalisation.

 
 

That being said, Nestle’s unit price of N910.00kobo (most valuable stock on the Nigerian bourse) raises its own set of realities as its expensive price status becomes a patronage consideration.
 

Though, the high-priced status does show the quality of the stock among its peers but the question is - can it hold patronage level above N900.00?
 

 

In the main, this may drive down its daily volume turnover considerably while it may also affect its marketability (liquidity) status since nobody buys expensive stock at its top. It may equally be reasonable difficult to get buyer(s) at this price when the need to sell or take profit arises.
 

This trend is not far from our expectation(s) for the stock; given that most blue chips are beginning to regain their true face value, taking advantage of market-making openings to achieve this goal.
 

The market should equally not be too surprised with this development as the trend seen with Nestle comes in line with one of the features of a ‘rebounding market’ which normally retraces with extra ordinary price appreciations, following a prolonged bearish run in the market.
 

Nevertheless, we expect the principle of fair value to come to play during possible price correction in near-term as the stock appeared overbought, trading at its top as technically revealed by RSI.
 

With regards to market sentiments, there are strong, positive sentiments towards the stock to ensure it remains bullish in both short and mid-long term period while it trades above it short term and long term prices. This indicates the willingness of the investors to pay higher to acquire the stock.
 

The Price Trend and Performance

 

Looking at the price trend and recent performance, the stock stands out among its peers with impressive year to date performance.

 

 

The Anticipatory Rally

 

The consistency in bonus and dividend history of the company justifies the anticipatory rally noted above.

 

Conclusively, the high priced status of Nestle technically reveals its quality, which has made it to stand out in the main board and sub-sector. Though, we remain cautiously optimistic as the principle of fair value will judge this further during the possible price correction that will ensue; as the stock trades at overbought range. The problem of finding buyers at this high price may possibly weaken its patronage status and possibly hinder its marketability as well.

 

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