Unilever PLC (LON: ULVR)

Unilever PLC (LON: ULVR) is an FTSE 100 index listed fast-moving consumer goods Company having three broader business segments – Beauty & Personal Care, Foods & Refreshment, and Home Care. Moreover, ULVR has a widespread presence in over 190 countries across 400 household brands, of which 13 brands have crossed the turnover of €1 billion during 2020. Overall, the Company has over 310 factories in around 70 countries.

On 10 February 2022, ULVR will release full-year FY21 results.

Recent Trend of Dividend Payments

ULVR has adopted a progressive dividend policy with consistent dividend payments for each financial quarter. Moreover, the Company usually pay a dividend four times in the month of March, June, September, and December. The Company had paid an interim quarterly dividend of 35.98 pence per share with respect to Q3 FY21 on 01 December 2021. The ex-dividend date was 04 November 2021.

(Source: LSE website; Analysis done by Kalkine Group)

Growth Prospects (Also covers update released on 17 January 2022)

• Strategic Initiatives: The Company had recently announced strategic pathways to reposition Unilever's portfolio into higher-growth categories. Moreover, ULVR had identified GSK’s consumer healthcare business to be a strong strategic fit as 45% of GSK Consumer Healthcare is in Oral Care and VMS.
• Share Buyback programme: ULVR had completed a share buyback programme of up to €3 billion on 03 December 2021. Moreover, the Company had started the first tranche of this buyback programme on 06 May 2021.
• Key Disposal Activities: ULVR had made accelerated progress for the separation of tea business, ekaterra, to CVC Capital Partners Fund for an approximate consideration of €4.5 billion on a cash-free, debt-free basis. Furthermore, the transaction is currently in the stage of getting regulatory approvals, and the Company aims to complete the operational separation of the Tea business by the end of 2022.

Key Risks

• Rejection of GSK Deal: According to the media reports, GSK had rejected the USD 68 billion takeover bid of the Company for the Consumer Healthcare business.
• Increase in Freight Cost: The Covid-19 pandemic caused additional supply chain costs and a negative margin mix, which resulted in the increase in the freight cost.
• Political & Economic Uncertainty: As the Company generates around 50% of the top-line business from the emerging markets. Thus, it would be exposed to the risk of Political & economic uncertainty.
• US Inflation: The U.S. consumer price inflation had touched 40 years high during December 2021. Thus, it may cause a sooner-than-expected interest rate hike.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Unilever PLC.

BlackRock Institutional Trust Company, N.A. is the most significant shareholder as it holds nearly 168.18 million shares as of 31 December 2021.      

Q3 FY21 Trading Statement (as on 21 October 2021)

(Source: Company result)

• Top-Line Business: ULVR had delivered underlying sales growth of around 2.5% during Q3 FY21 and approximately 4.4% during 9M FY21, as compared to an equivalent period of FY20.
• Strong Regional Growth: The Company had posted significant growth in the three priority markets of the US, China and India.
• Divisional Performance: ULVR had managed to display a decent sales growth for all three business segments - Beauty & Personal Care, Home Care, and Foods & Refreshment.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

  (Source: Refinitiv; Analysis done by Kalkine Group)

On 17 January 2022, at 09:20 AM GMT, ULVR’s shares were trading at GBX 3,673.00, down by around 6.69% from the previous day closing price. Stock 52-week High and Low were GBX 4,944.00 and GBX 3,650.00, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~26.63 indicates a bullish price momentum.

Over the last five years, ULVR’s stock price had delivered a positive return of ~10.83%, while the FTSE All-Share Consumer Staples index (benchmark sector) had produced a return of 3.82%, and FTSE 100 (benchmark index) had generated a return of around 5.19%. 

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook

The Company had produced strong financial performance during the third quarter of 2021 as it delivered Q3 YTD growth at its fastest rate for eight years. Despite of challenging comparatives during H2 FY21, ULVR still anticipates FY21 sales growth ranging from 3% to 5%. Meanwhile, the Company had implemented several strategic initiatives to enhance operating performance. ULVR had made significant progress through the establishment of fast-growing new businesses of scale in Prestige Beauty and Functional Nutrition, and the divestment of Spreads and Tea. Overall, the Company remained on track to deliver sustainable growth for the shareholders through the sound business model, strong cash generation and consistent dividend payments.

Considering the disposal of Tea business, underlying sales growth during Q3 FY21, strong balance sheet, consistent dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Unilever PLC at the current market price of GBX 3,673.00 (as on 17 January 2022 at 09:20 AM GMT), with lower-double digit upside potential based on 20.49x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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