Interactive Investor

ii view: Unilever defies market turmoil

Following a weak final quarter of 2019, the consumer goods giant is back on investor buy lists.

30th January 2020 12:38

Keith Bowman from interactive investor

Following a weak final quarter of 2019, the consumer goods giant is back on investor buy lists.

Fourth-quarter results

  • Revenue up 4% to €12.6 billion
  • Underlying sales growth of 1.5%
  • Quarterly dividend up 6% to €0.4104 per share

Chief executive Alan Jope said:

“We are now stepping up execution against our fundamental drivers of growth. These are to: increase penetration by improving brand awareness and availability; implement a more impactful innovation programme; improve our performance in faster growing channels; drive purpose into all our brands; and fuel growth through cost savings.

"In 2020, our underlying sales growth is expected to be in the lower half of the multi-year 3-5% range and will be second-half weighted. While we expect an improvement from the fourth quarter of 2019 into the first half of 2020, first half underlying sales growth will be below 3%. The impact of the coronavirus outbreak is unknown at this time. As we near the completion of our three-year strategic plan, we expect continued improvement in underlying operating margin and another year of strong free cash flow, remaining on track for our 2020 goals."

ii round-up:

Following a disappointing mid-December sales update from Unilever (LSE:ULVR), fourth-quarter results from this consumer goods giant provided no new negative surprises. 

Full-year 2020 guidance or management estimates proved unchanged, with growth of 1.5% in quarterly underlying sales being marginally above the consensus analyst estimate of 1.4%. 

The share price rose by just over 1% in late UK morning trading, having fallen by 11% over the last quarter of 2019. 

An ongoing evaluation of its brand portfolio will see its global tea business come under management’s magnifying glass. Tea brands include Liptons and PG Tips.

Unilever’s home care business, including brands such as Cif and Sunlight, proved notable strengths over 2019, while, on a geographical basis, strength in emerging markets was dented by modest North American and falling European sales. 

ii view:

Unilever is considered to be defensive in nature. The type of products it sells are regularly on the shopping lists of consumers globally come rain or shine. However, recent years have not been all plain sailing. Wage-squeezed consumers have often been turning to cheaper non-branded goods and competitor Procter & Gamble (NYSE:PG) has been reinvigorated – P&G shares rose by 35% over 2019 compared to a near 6% gain for Unilever. 

For investors, a prospective dividend yield of just over 3% is not unattractive in the current ultra-low interest rate environment. But sales are yet to impress, and a forward price/earnings (PE) ratio of around 20, broadly in line with both the three and 10-year averages, doesn't scream value. That said, Unilever has a strong record of recovering from setbacks and its shares will likely remain a staple in many investor portfolios.

Positives: 

  • Provides diversity in both product type and geographical location
  • A focus on emerging markets
  • Defensive qualities in uncertain times

Negatives:

  • Previously lowered sales estimates
  • It has on occasion found itself being investigated by competition authorities
  • Discount retailers often only stock their own branded labels

The average rating of stock market analysts:

Strong hold

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