Highlight: "Markets in Review" Issue #8

Cocoa once again in the headlines…

Currently, Nestle Stock (NESN.SW) is sitting at almost 30% draw down from its peak, reached in early 2022. This Swiss giant, behind many consumer brands including Nespresso, KitKat, and San Pellegrino, grew from a revenue perspective while maintaining costs in check, substantially increasing FCF with each passing year. This means that the company was effectively creating value for its shareholders and consumers, yet the stock price is reflecting a different story.

Indeed new EU regulation requires companies including Mars Inc., Nestle, and Ferrero group, to prove that every cocoa bean they import into Europe did not result from trees being chopped down elsewhere, and this by December of 2024. In light of production decrease in Cocoa production, and the subsequent increase in Cocoa future, this regulation could adversely affect Nestle’s capacity to maintain fundamental improvements.

This explains, in part, the story behind the fluctuations in Nestle's stock price and might represent an interesting deep dive for a deep value investor. You can read more about the effect of this new regulation in this article on Bloomberg by Gitau, Mieu and Dontoh.

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