Company Profile
Unilever, headquartered in London, is a producer and marketer of fast-moving consumer goods (FMCGs) such as food, beverages, home care, health and wellbeing products. The company was formed in the year 1930 and operates through more than 400 brands across the Americas, Europe, Asia-Pacific, Africa and the Middle East regions. Core business segments are Home care, Personal care, Foods, Refreshment and Others. The major brands comprise Knorr, Hellmann’s, Lipton, Wall’s, Lux, Dove, Rexona, Surf Excel, Comfort, Sunsilk, Pureit, Suave and Axe, to name a few. Its distribution channels include supermarkets, hypermarkets, wholesalers, cash and carry, small convenience stores, e-commerce, out-of-home and direct consumer channels. The company has pledged to reduce its carbon footprint extensively by 2030 and was ranked number one in its sector as per Dow Jones Sustainability Index 2017.

Segments Revenue Contribution

(Source: Company Research, Annual Report FY18)

Key Statistics

Top Shareholders

Source: TR

Operational Performance


(Source: Company filings, LSE)

Beauty & Personal Care
Underlying business turnover grew by 3.1 per cent in FY18. Their global giant brand Dove registered another stellar growth. Derma care business grew firmly facilitated by innovations, and new Vaseline range with cold strength moisturisation and new brands like Beauty & Planet and Love helped them to address the steady growing natural trends. The relaunch of Lifebuoy with active silver, volume growth in Dove Deodorants and double-digit growth on Hourglass, Ren, Living Proof and Kate Sommerville held company during the FY18. Operating margin of Beauty & Personal care improved 80 basis points in FY18. Volume grew by 2.1 per cent during the year.

Food & Refreshment
Underlying business turnover grew 2.3 Per cent excluding spreads. Ice cream segment had posted another hefty growth in this year, helped by new Magnum and its variant and non-dairy range of Ben & Jerry. Good weather and launch of new Kinder delivered strong growth in Europe. Tea business grew modestly during the FY18, Brook Bond tea brand drove the growth in the emerging market. In FY18, the company announced to acquire Horlicks brand in India, Bangladesh and 20 other countries from GSK. Food and Refreshment segment volume grew by 1.6 per cent during FY18. Underlying segment operating margin increased by 80 basis points in FY18.

Home Care
Underlying business turnover grew by 4.2 per cent, Home & Hygiene reported stellar growth in FY18 driven by Sunlight. Comfort business grew on account of market development in India and China as well as launch into Germany. Fabric solutions like Surf Excel Matics grew strongly in India. Volume grew by 2.3 per cent in the Home Care business segment in FY18. Underlying segment operating margin improved by 80 basis points in FY18.

Full Year Financial Performance Highlights– FY18 (Fig. in € million)

Underlying sales grew by 3.1 per cent excluding spreads, on account of decent growth in all of its business segments like Beauty and Personal care segment grew by 3.1 per cent, Food & restaurants business grew by 2.3 per cent, and Homecare vertical grew by 4.2 per cent respectively. Due to hyperinflationary situation in Argentina, company has excluded the price growth from underlying sales from July onwards. Company’s operating margin grew by 90 basis points to 18.4 per cent and gross margin during the year improved by 50 basis points. Earnings per share grew by 5.2 per cent in FY18 to €3.5 from €2.16 in FY17. During FY18, total underlying sales were impacted by an adverse currency impact of 6.7 per cent and the disposal of spreads. In Asia/AMET/RUB sales grew by 6.2 per cent. India reported another strong growth will decent momentum growth across all divisions translating into double-digit growth, and also company witnessed good growth in Pakistan and Bangladesh. Sales in Indonesia grew throughout the year backed by stronger innovations and improving market condition over there. The company reported volume grew by 4.3 per cent in Asia/AMET/RUB. Underlying operating margin from this geographical segment improved by 130 basis points in FY18. In FY18, sales grew by 0.9 per cent in North America, the performance of deodorants, skin cleansing, and home care was offset by continued competitive pressure in dressing and tea. Sales in Latin America decreased by -1.0 per cent, Sales in Brazil grew modestly in the second half of FY18. Mexico sales were strong. Sales in The Americas plunged mainly due to volume decreased in Argentina by 10 per cent for the year. Operating margin reduced by 70 basis points from The America geography. In Europe, sales grew by 0.7 per cent mainly because of volume growth. Strong Ice cream sales accompanied by strong innovation plan as well as good weather helped the company to report strong performance in the European market. Central and Eastern Europe performed well throughout the year with sustained growth in the UK.  Sales declined in France due to challenging market condition, off-take dropped across all categories excepts Ice Cream. Operating margin improved by 200 basis points driven by a significant improvement in gross margin and lower overheads. Free cash flow stood at €5.0 billion in FY18 was mainly affected due to currency devaluation and increased working capital including a €0.4 billion increase relating to the disposal of spreads. Net Debt stood at €20.8 billion compared with the €20.3 billion in FY17. Return on invested capital reduced by 40 basis points in FY18 at 18.8%, mainly due to the hyperinflationary accounting in Argentina.
 
Stock Performance –1Yr


(Source: TR)

Highlights

At the close (on 28^th February 2019), shares were quoting at GBX 3,969.50. During the last one shares have reached to a 52w high of GBX 4,503.60 and a 52w low of GBX 3,695.00, and at the close shares were trading 11.0 % lower against its 52w high and 8.47% above its 52w low. Shares delivered a return of 7.35% over last one year. Dividend yield stood at 3.38%, which was significantly higher compared with its peers operating in the same industry. 5 days average daily volume in the shares traded on the London Stock Exchange was 37.50% higher compared with 30 days average daily volume. At a simple moving average standpoint, shares were trading close to its 200days simple moving average and 60 days simple moving average, which shows shares have the potential to rise in near-term. Stock's Beta stood at 0.85 which indicates the stock is comparatively less volatile to the benchmark indices.
 

Financial Ratios & Valuation Methodology

Financial Ratios- (FY18)

(Source: TR)

Valuation Methodology

Valuation Method 1

 

Valuation Method 2 (NTM EPS (FY19E) approx.)

 

While valuing Unilever Plc on Price-to-Earnings multiple, we have considered next twelve-month (NTM) P/E of its peers, which were Nestle SA (NTM PE 23x), Danone SA (NTM PE 19x), Reckitt Benckiser Group Plc (NTM PE 18x), L’Oréal SA (NTM PE 29x) and Kerry Group Plc (NTM PE 23x) respectively.

Note: All forecasted figures and peers have been taken from Thomson Reuters. 

Conclusion
Unilever Plc has reported strong performance in FY18 compared to its benchmark, but because of the hyperinflationary condition in Argentina, performance got bit impacted. Going forward the company has higher potential to increase market share in Asia. Based on strong fundamentals of the Unilever Plc we have given a BUY recommendation with high single-digit upside potential (based on 14.4x NTM EV/EBITDA on FY19E EBITDA) or (based on 22.4x NTM PE on FY19E EPS).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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