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Missing targets

lse:ulvr

#1

Looks like Unilever is missing it’s low end target for 2019 to below 3% after guiding for 3-5% growth. They also think they will miss the first half of 2020 and it will be 2nd half loaded.
This looks like a precursor to a string of profit warnings.
Stock down 5.3% as I type.

Games


#2

If you don’t have any ULVR this is a good price to start building. Top brands that have been around for decades and will continue to be around for decades. A Keeper for me. Pretty well guaranteed to get back to £50 at some stage in future. I will add another lot if it drops another quid.

All IMHO and GLA


#3

Hi Doug, what analysis have you done to arrive at the £50 value. I appreciate Unilever has a long history of value growth, but in the last 5 years (and I’m not talking about its share price) the revenue has gone nowhere, the profit has risen but the debt has grown over 300%
On top of that the shares trade on a P/E of 21 against a growth of less than 3%.
There is every prospect of this trading at 15X+

Regards Games


#4

I’m aware of the risks but every day one third of the world uses a ULVR product. The high P/E is indeed a worry and I must admit I didn’t know about your debt growth of 300%. The geographical diversity offers some useful protection as does their pricing power. I really like that they’re big players in growing economies and huge populations of India and China. I also think they can always offload certain brands at premium prices if they need more cash as they did with “spreads” a while back.

Maybe I’ve been lucky, but I’ve always managed to stock up on downtrends and ride it up then bail at a higher price, usually keeping a core holding. All the while nice divvies (easily covered) keep ticking over.

I can’t quote HL’s research on here but suggest (if you haven’t already) you go to their website and form your own views.

Besides, the wife absolutely loves “Dove” and that’s good enough for me.


#5

Doug in my other post, I wrote this after the arrow below :-

I’d also be careful with assuming it’s got great brands therefore it is always going to prosper - look at Heinz and the massive overvaluation that Warren Buffet assigned to it and got it incredibly wrong – Heinz was in his top 10 Fercryinoutloud.
His valuation of Unilever was rich when he made the bid before the recent management screw up in trying to take Unilever away from the UK - both the CEO and Chairman have gone because of that, although retirement was the excuse in the CEO’s case and the Chairman Decker made a right Desmond of the governance. (sorry about the pun).

At today’s 7.16% drop you are likely to get a recovery bounce tomorrow, but I wouldn’t be surprised if this doesn’t find its way all the way back to a P/E of around 15 by the time the 2nd and third profit warnings come in 2020 – which I’m roughly calculating at 3500. At that point it would offer a 4%+ yield on a virtually no growth stock seems a reasonable return.
---------------------------->
Revenue in 2014 = Euro48.4Bn ;Rev in 2018 = Euro50.982 ------> Growth 5.3% (1.3% annualised).
OK This is difficult because business units have been added and some sold off so not like for like – but it is still a business, right, so it needs to grow?

Profit after Tax (forget EBITDA which is bullshit) in 2014 = Euro5.15Bn; and in 2018=Euro9.808BN ----> Growth 90% – pretty good yes?
So this would have implied that they sold off less profitable units and added better ones and/or improved organic margins - a bit of both maybe?

Borrowings in 2014=Euro7.186Bn and in 2018=Euro21.65Bn -------> 3X or 201.3% growth – more than double the profit growth and dwarfs the revenue growth.
Net cash applied to finances :

In 2014=Euro5.19Bn and in 2018=Euro11.548BN ---------> 2.22X or 122% growth in commitments

Net Gearing:-
In 2014=231% and in 2018=379%
----------------------------------------------<

Games


#6

I remember back in 2017 Bill1703 saying £35 fair value, maybe you agreed too back then. I doubted him then and I’m glad I ignored him because I’ve done well since then on ULVR trades. I notice in the past 2 years it never got to that desired £35 entry point … but did get to £53. Anyway, at £35 (which I doubt we’ll ever see) Kraft and Buffet will come sniffing again and the SP will shoot back up. I like your 2nd and 3rd profit warnings prediction - I was thinking along the same lines which is why I’m not buying right now - I will just add a 2nd and 3rd tranche. As I said before, needs to drop a bit more for me to get some more but I’m confident I will see a healthy profit in time. I don’t care about short term movements and blips - I have my targets and my buy points and I’ll stick to them. In fact I like the odd p/w as it means I can pick up more on the cheap. ULVR has always served me well and I’m sure this will continue. Growth will come as India and China (and I) get richer. By the way, Heinz does not really operate in the same market segments nor does it have the superior diversified brands and worldwide exposure of Unilever.


#7

Ah, looks like all those years trying to train old Games are beginning to bear fruit!

I never saw any reason to go back on my £35 “fair value” - at that time. Equally, I fully understood why the big “quality” overseas earners like ULVR (and DGE, RB, etc) have traded at a significant premium to “fair value” for most of the past 3.5 years, with a depressed GBP and a prolonged shadow cast over all UK-focused assets with (mostly) Brexit related economic uncertainty.

But in recent times, these factors have begun to reverse - as they always were going to do. Hence the ULVR decline, even before this week’s “warning”, from c£53 to £45/46. But at that level, as Games rightly points out, it still ain’t cheap - a P/E around 21x, against a long-term “mean” of more like 18.5x, and with actual near term growth prospects looking more modest than they have for a long time.

And don’t forget, the “E” is still benefitting from a GBP level which has, partial recovery notwithstanding, is still at comparatively depressed levels - if we see GBP recover (as I think we will) back to 1.45/1.50 at least over the next couple of years, ULVR could be “reporting” earnings (and cash flows and dividends, etc) actually lower than where they have been lately, several years from now!

We are 2+ years on from 2017, and “fair value” will have moved up accordingly - but on next year forecasts (ie. FY 2020) it is still trading on 20x (and those forecasts are more likely to get revised down than up, on FX at least. Too high for me, on any sustainable basis - something nearer the long-term “mean” of 18.5x, and thus a SP of £39/40, would be about right today.

FWIW I agree with Doug, I think you will see £50 again here - it is merely a case of “don’t know where, don’t know when”. Could be some years away - fine for all genuinely long-term investors, but not a prospect I find compelling right now at above £43.


#8

Good to hear from you again Bill. I bought in @4640 and will get tranche 2 @4160 and then tranche 3 @3910, etc. I will keep buying all the way down to £32. If it goes up then I’ll bail any tranches on 8% gain. All numbers approximate. I’m confident £50 will be seen sometime in next 2 years.


#9

Yes, Doug, £46 certainly a better starting point than £53 - and as I have said before on these pages, I would like to own ULVR, but I am not going to buy anything at any more than “fair value”. Of course, my “fair value” could simply be wrong - I’ve been wrong before, on a regular basis!

I missed it at £30/31 in early 2016 when I was looking at it with serious interest - as indeed was Uncle Warren, as soon became clear. I would certainly need sub-£40 to be tempted as things stand - maybe it will never get there, in which case I will have to fish elsewhere, though I suspect there is more chance of £40 than your £50 on a 2-year timeframe. Further out than that, of course, is likely a different matter.

It is interesting (to me anyway!) how the ratings of the Big 3 International Consumer Champs have diverged - for a while (eg. last year?) they were all trading on c.21-22x forward earnings. Diageo is off its highs but still at an extended 23x fwd P/E, Unilever got to a similar level but back around 21x now, while Reckitts is down to c.18.5x - and as such, much more in line with the long-term mean. RB earnings look to be going nowhere for the next year or so (if anything, down a bit?) but is probably no worse than a HOLD now - ULVR and DGE remain SELLs for me still.


#10

I would expect both £40 and £50 to be hit over two years. I hold RB, DGE, VOD, RR and many other big names - DGE and RB up slightly but VOD and RR got a way to go. You still keen on MKS and IMB?


#11

Yes, still keen enough on both - albeit with caveats.

MKS has staged a decent recovery to 215-220p from the 160p lows, and I still feel there is a lot to go for here - but could be a long haul as the right-sizing of the business continues. And I am not convinced by the Ocado deal - at best, that is a long-term story too. I have no doubt we can recover 300p here in due course, but for that they will have to get earnings back above 20p (at least) on a sustainable basis, and for that we must be patient.

IMB is more clear-cut - just too cheap. But they are going through a process of wholesale management change - long overdue, I suspect - and the pace of recovery will probably depend on what a new management team choose to do with the business. And, not least, the current dividend level…

All in all, it has been a tough 5 or 6 years for ‘Value’ stocks - but there are signs in recent months that this is turning, as history tells us it will (it just doesn’t tell us when). But if, as and when it does, then there is at least the potential for the likes of MKS, IMB and yes, VOD too, to do pretty well for some time. But in each case, the pace and scale of this recovery will be determined by new or at least new-ish management teams and their respective decision-making.


#13

@Gamesinvestor1 or was it @gamesinvestor . Did you just try and reply to me?


#14

Hi Doug - yes, but realised I was repeating myself. The wife accuses me of it from time to time.
Nothing new other than the continued £ strengthening is likely to put continued pressure on ULVR. That and the fact they don’t see an upturn in their business for at least a year.

Games


#15

Don’t worry about repeating yourself. My memory’s so bad I need reminding several times :rofl: