Interactive Investor

Unilever riding high from pandemic shift to a cleaner world

Hygiene boom helps consumer goods firm rise 3% as the FTSE 100 falls 20%.

22nd October 2020 11:26

Richard Hunter from interactive investor

Hygiene boom helps consumer goods firm rise 3% as the FTSE 100 falls 20% - the share price is also on the up.

Unilever (LSE:ULVR) has enjoyed a generally strong quarter, still driven by a pandemic-related boost in sales of home and hygiene products.

Underlying sales growth across the business rose by 4.4%, with Emerging Markets enjoying a bump of 5.3% in the period. By product, Home Care was a particular beneficiary of the current environment. The unit accounts for 20% of turnover, and saw growth of 6.7%, as hygiene awareness escalated around the globe.

Sales in the US and India were also particularly strong which, in the case of the latter, was achieved across a broad range of products. China also showed a return to form, underlining the perception that the country is leading the global economic recovery. With the Asian/African region accounting for 46% of turnover, any incremental improvement has an immediately positive impact on the group’s fortunes.

Meanwhile, the online channel continues to pick up some of the slack caused by various lockdowns, and saw further growth of 76% in the period.

From an investment perspective, the increase to the dividend is a welcome move and a sign of confidence in prospects. The current yield of 3.1% is not especially punchy, but is nonetheless a relief to income-starved investors who have found the hunt for yield increasingly difficult.

As ever, challenges remain in parts of the business for different reasons. 

For the numbers overall, turnover was badly affected by the negative impact of currency movements, wiping 7.7% from the figures. Geographically, Europe’s performance was mixed to lower, while Latin America sales also fell.

The competitive landscape is particularly fierce in an environment where the rise of own-brand products from many retailers has put pressure on pricing, as shown in this update in Europe especially.

The question of unification of the shares currently listed in the UK and the Netherlands is also a distraction. The company remains committed to the idea, but there have been some legal considerations which add risk to the proposal and therefore, inevitably, require more management attention.

Even so, the shares have certainly shown true defensive qualities against a challenging economic backdrop and have significantly outperformed the broader index. 

A rise of 3% over the last year compares to a decline of 20% for the FTSE 100 in that period and, in the year to date, the shares have added 8%. Coupled with a comfortable operating margin and a decent dividend yield, prospects are improving. The recent upgrade of the market consensus to a ‘buy’ reflects the progress Unilever is making.

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