Unilever PLC (LON: ULVR) – Global leader in the sustainable business with a strong presence in growth markets of the future.

Unilever PLC (LON: ULVR) is a FTSE 100-listed fast-moving consumer goods Company. Moreover, ULVR has three broader business segments – Beauty & Personal Care, Foods & Refreshment, and Home Care. ULVR has a widespread presence in over 190 countries. The Company has over 400 household brands, of which 13 brands have crossed the turnover of €1 billion during 2020. Furthermore, the Company is successfully serving the customers over the last 130 years through its robust portfolio. ULVR has around 2.5 billion customers who are using its products daily. Overall, the Company has over 310 factories in around 70 countries.

On 29 April 2021, ULVR will release the Q1 FY21 trading statement.

 (Source: Company presentation) 

Recent Trend of Dividend Payments

ULVR has adopted a progressive dividend policy with consistent dividend payments four times in the month of March, June, September, and December. The Company had paid an interim dividend of 37.6 pence per share with respect to the fourth quarter of FY20 on 17 March 2021. The ex-dividend date was 25 February 2021.

Growth Prospects and Risk Assessment

The Company’s growth and profitability can be determined by the portfolio of divisions, channels, and geographies. ULVR would continue to develop its portfolio in high growth spaces through strategic collaborations by making key acquisitions and disposals. Moreover, ULVR would continue to focus on expanding the e-Commerce space as there is still a high scope of penetration in digitalising the distribution trade. Meanwhile, ULVR would seek lucrative market opportunities in the world’s fastest-growing economies as the Company already had a 35% revenue share coming from the USA, India, and China. Moreover, it would continue to accelerate the business scalability in India, China, and the United States.

(Source: Company presentation)

The Company would expand the portfolio in high-growth categories like Hygiene, Skincare, Prestige beauty, Functional nutrition and Plant-based foods.

However, there are certain potential risks that can impact the business, such as a change in consumer taste, preferences and behaviours, failure to take strategic investment decision, climate change, plastic packaging, physical disruption in the supply chain network, failure to execute acquisition synergies. Moreover, Unilever generates more than 50% of the turnover from emerging countries; hence ULVR is exposed to the risk regarding the political and economic uncertainty.

Industry Outlook Dynamics

According to Grand View Research’s latest report, the market size of the global men’s personal care industry was USD 47.50 billion during 2019. Moreover, the industry is expected to grow at a CAGR of 6.0% from 2020 to 2027. Moreover, the growing concern regarding grooming, hygiene, body image, and health would be key factors driving the industry. The industry was adversely impacted by the Covid-19 pandemic as consumer’s discretionary expenditure had been reduced.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Unilever Plc.

 A Glimpse of Segment (FY20)

Financial and Operational Highlights (for the year ended 31 December 2020 (FY20), as on 4 February 2021)

(Source: Company Website)

• The Company delivered a strong set of results, with more than 60% market share of the business in the last quarter.
• The turnover decreased by 2.4% YoY in FY20; however, it has shown a growth of 1.9% YoY in underlying sales, with an increase of 1.6% YoY in the underlying volume.
• The decline in turnover was driven by the weakening of currencies in key markets such as India, Brazil and Argentina. It has a significant impact on consumer behaviour due to Covid-19.
• Over the five years, the turnover growth was averaged at (0.9)%, average underlying sales growth of 2.9%, and underlying average volume growth stood at 1.3%.
• The Company saw a growth in laundry products, hand and home hygiene and in-home food and refreshment.
• ULVR made a positive contribution of 1.2% to turnover in acquisition and disposal activities, primarily from the health food drinks portfolio (which was acquired from GlaxoSmithKline).
• As per geographical area, the emerging markets' underlying sales increased by 1.2% YoY, and developed markets sales surged by 2.9% YoY, due to China and India returned to growth in H2 FY20 and a strong performance in North America in-home food.
• Moreover, Latin America sales rose by mid-single-digit, and Indonesia grew slightly, while Europe market sales were down by 1.0% YoY.
• During the year, Global eCommerce sales increased by 61% YoY.
• Net profit from joint ventures and associates was in line with the previous year.
• Underlying earnings per share (including a negative impact from currency) declined to €2.48, while the constant underlying earnings per share surged by 4.1% YoY. The increase was primarily due to operating performance, lower tax and finance costs.
• The Company also generated an underlying operating profit of €9.4 billion (down 5.8% YoY but surged by 0.7% at CER (constant exchange rates)) and a free cash flow of €7.7 billion (up €1.5 billion YoY).
• At the end of the year, the closing net debt decreased to €20.9 billion against the previous year (31 December 2019: €23.1 billion), driven by higher free cash flow and currency impact.
• The Company witnessed a strong positive investment performance, supported by a surplus of €0.3 billion in pension assets net of liabilities.
• In FY20, the Company continued to achieve volume-led competitive growth to deliver profitability for maximizing shareholder value.
• The Company has maintained its dividend in 2020 and increased by 4% in Q4 FY20.
• Return on invested capital declined to 18.0% as compared to the prior year (2019: 19.2%), reflecting lower underlying operating profit after tax and higher goodwill and intangible assets from the Horlicks acquisition.
• The Company started the year 2021 in good shape and is delivering superior long-term financial performance through the sustainable business model.

Financial Ratios (FY2020)

Share Price Performance Analysis

On 22 March 2021, at the time of writing (before the market close, at 8:01 AM GMT), Unilever PLC shares were trading at GBX 3,936.50, down by 0.39% against the previous day closing price. Stock 52-week High was GBX 4,944.00, and Low was GBX 3,721.00, respectively.

From a technical standpoint, 20-day SMA (GBX 3,893.30) and 90-day RSI (44.03) supports an upside potential.

In the last five years, Unilever PLC’s stock price has delivered a return of ~50.58% as compared to ~31.93% return of the FTSE 100 index and a ~12.83% return of the FTSE All-Share Consumer Discretionary index, which shows that the stock has outperformed the benchmark sector and the benchmark index.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

Business Outlook Scenario

The Company had kickstarted FY21 on a bright note and is on track to achieve superior long-term financial performance through the sustainable business model. ULVR had delivered resilient financial performance during FY20 despite various operational headwinds caused by the Covid-19 pandemic. ULVR has gained significant market share during the last quarter of FY20 while generating a decent underlying operating profit and an increase in free cash flow. Meanwhile, in FY20, the Company continued to achieve volume-led competitive growth to deliver profitability for maximizing shareholder value. Therefore, the business is delivering superior long-term financial performance through the strong balance sheet and liquidity position.

ULVR had provided a multi-year financial framework. Moreover, Unilever had anticipated delivering underlying sales growth ranging from 3% to 5%. ULVR had also estimated profit growth exceeding underlying sales growth on a comparable basis. Overall, the Company would generate long term value for its shareholders through the strong portfolio, robust cash flow and growing dividends.

(Source: Company presentation)

Considering a strong presence in the multiple markets, sound business model, higher profitability margins, strong cash conversion, robust balance sheet & cash flow position, decent FY21 guidance, operational conditions improving towards normal levels, decent financial & liquidity position, sustainable dividend policy, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Unilever at the current price of GBX 3,936.50 (as on 22 March 2021, before the market close at 8:01 AM GMT), with lower-double digit upside potential based on 22.53 Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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