Must read: Bank of Japan, Unilever rallies, NatWest

GLOBAL MARKETS

European markets have opened around the flatline. Unilever (LSE:ULVR) has jumped to the top of the FTSE 100 after it announced plans to cut costs while rival Reckitt Benckiser Group (LSE:RKT) has sunk to the bottom of the basket.

Overnight the Bank of Japan marked a historic end to its era of rock bottom interest rates, by raising rates out of negative territory for the first time in eight years. This is the first rate hike from the BoJ since 2007. Meanwhile, the Bank of Australia kept its cash rate unchanged at 4.35%.

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Central bank action continues tomorrow with rate decisions from the US, China and Brazil followed by the Bank of England, Switzerland, Turkey, Mexico among others on Thursday.

UNILEVER

Unilever has announced plans to separate off its ice cream business as part of an attempt to save costs. The split is aimed at allowing Unilever to focus on doing fewer things better and enhance productivity and simplicity. Its ice cream brands including Magnum and Ben & Jerry’s delivered €7.9 billion of turnover last year. Unilever said a demerger is the most likely separation route with completion expected by the end of next year.

Meanwhile, the company is launching a productivity programme, aiming to deliver total cost savings of around €800 million over the next three years, potentially resulting in 7,500 job losses from its 128,000 strong workforce and restructuring costs of around 1.2% of group turnover. Earlier this month, CEO Hein Schumacher said he wouldn’t shy away from job cuts.

Unilever has been under pressure lately from its investors and analysts to boost margins and preserve market share. Today’s decision is understood to have been influenced by activist investor Nelson Peltz who made similar changes at rival Procter & Gamble Co (NYSE:PG).

Unilever believes that the ice cream split off and the productivity programme will boost margins and sales growth in the medium term. Investors are reacting very positively to today’s update with the stock gaining around 5%. 

Schumacher has been taking decisive action since taking to the helm, launching a €1.5 billion share buyback last month and committing to rebuild margin growth, which has come under pressure amid the backdrop of inflation following the pandemic and the war in Ukraine.

NATWEST

NatWest Group (LSE:NWG) said it is seeking shareholder approval to buyback up to 15% of stock, equating to around £3 billion, owned by the British government in any 12-month period. The lender said this will provide the Board with flexibility to consider share buybacks.

No doubt this will be a welcome development for the government which has been desperately trying to offload its remaining shares which have become a burden to the taxpayer. At the same time, it would potentially be beneficial to NatWest’s share price since buybacks typically provide a stock market boost. NatWest has been looking for ways to move beyond last year’s debanking scandal and revive investor appetite for the stock.

Meanwhile, In the Spring Budget this month, the Treasury said it is planning sell off the government’s remaining stake in NatWest which has dropped to below 33%. A sale of part of its NatWest shareholding to retail investors will take place this summer at the earliest, subject to supportive market conditions.

The bank, formerly known as RBS, was bailed out under its previous namesake during the global financial crisis in 2008 to prevent a systemic collapse that could have spread across the financial system  The Treasury’s leftover stake is now worth around £7.5 billion and compares with the 84% stake it had to take on 16 years ago.

The government aims to fully get rid of its shares by 2026. However, the taxpayer has suffered on the back of NatWest’s share price decline. Its current share price of 239p is less than half the price paid by the government of 499p.

Last year, the Nigel Farage debanking scandal punished the stock which fell sharply, and led to the ousting of NatWest’s CEO Dame Alison Rose. Over the last 12 months, shares in NatWest are down over 7%.  

A weak share price isn’t great for the government as it means less revenue is generated for the taxpayer from the share sale. However, the flipside is that in a ‘tell Sid’ retail share sale, it provides investors with the opportunity to ‘buy low’, allowing them to potentially profit if NatWest’s share price subsequently rises.