Unilever PLC (LON: ULVR) – Share buyback programme of around €3 billion to be completed by FY21

Unilever PLC (LON: ULVR) is an 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. Overall, the Company has over 310 factories in around 70 countries.

On 22 July 2021, ULVR will release Q2 FY21 and H1 FY21 results.

(Source: Company Presentation)

Recent Trend of Dividend Payments

ULVR has adopted a progressive dividend policy with consistent dividend payments declared at the end of each financial quarter. Moreover, the Company usually pay a dividend four times in the month of March, June, September, and December. The Company will pay an interim dividend of 37.10 pence per share (€0.4268) with respect to the first quarter of FY21 on 10 June 2021. The ex-dividend date was 20 May 2021. The dividend calendar for the remainder of 2021 is shown below –

(Source: Company result)

Growth Prospects and Risk Assessment

• Share Buyback programme– ULVR had announced a share buyback programme of up to €3 billion along with the first-quarter results to be completed by the end of 2021. Moreover, the Company had started the first tranche of this buyback programme on 06 May 2021, which was equivalent to €1.5 billion.
• Decent Growth in Emerging Markets – The Company remained focused on delivering robust sales growth in emerging markets. Moreover, the underlying sales growth of emerging markets was around 9.4% during Q1 FY21, boosted by the double-digit growth in India and China.
• Separation of Personal care brands – The Company remained in process for the separation of several smaller beauty and personal care brands such as Q-Tips, Caress, Tigi, Timotei, Impulse and MonSavon. Moreover, the Company aims to operate these brands under Elida Beauty to generate benefit from dedicated management focus.
• Separation of Tea Business – ULVR had made accelerated progress for the separation of tea business excluding India & Indonesia and the partnership interests in the ready-to-drink tea joint ventures. Furthermore, the Company aims to complete the operational separation of the Tea business by the end of 2021.

Key Risks

• Consumer Behaviour & Changing Dynamics – The fluctuation in the Covid-19 case levels and key geographic markets exiting and entering lockdowns would adversely impact consumer behaviour.
• Underperformance of Tea Business after Separation – The tea business may not generate desired top-line business after the operational separation.
• 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 50% of the top-line business from the emerging markets. Thus, it would be exposed to the risk of Political & economic uncertainty.

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 March 2021.             

Q1 FY21 Trading Statement (for the three months ended 31 March 2021, as on 29 April 2021)

(Source: Company result)

• ULVR had delivered underlying sales growth of around 5.7% during Q1 FY21 as compared to an equivalent period of FY20.
• Moreover, the volume grew by 4.7%, and the price rose by around 1.0% during the period.
• With regards to the divisional performance, all three business segments, Beauty & Personal Care, Home Care and Foods & Refreshment business division, had shown an underlying sales growth of around 2.3%, 5.9%, and 9.8%, respectively, during Q1 FY21.
• On the geographical front, the Company had shown encouraging performance in Latin America and Asia as the underlying sales rose by 7.2% and 9.9%, respectively, during Q1 FY21.
  

Financial Ratios (FY20)

Share Price Performance Analysis

(Analysis done by Kalkine Group)

On 07 June 2021, at 09:18 AM GMT, ULVR’s shares were trading at GBX 4,267.00, down by around 0.14% from the previous day closing price. Stock 52-week High and Low were GBX 4,944.00 and GBX 3,721.00, respectively.

On a daily chart, the stock is trading above a downward sloping trend line breakout for more than a month, indicating an upward direction for the stock. The momentum indicator RSI (14-period) is trading in positive territory at ~50.10 level. The trend-following indicator 21-period SMA and 50-period SMA hovering around the current market price and supporting a positive direction for the stock. The MACD line is also trading above the centerline, however, forming negative divergence with the signal line.

Over the last five years, ULVR’s stock price had delivered a positive return of ~32.09%, while the FTSE All-Share Consumer Staples index (benchmark sector) had produced a return of negative 0.51%, and FTSE 100 (benchmark index) had generated a return of around 12.56%. 

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

Business Outlook Scenario

The Company had produced strong financial performance during the first quarter of 2021 as it delivered underlying sales growth for all three business segments. Moreover, ULVR had anticipated delivering underlying sales growth ranging from 3% to 5% for FY21, with H1 FY21 projected to witness a growth around the top of the range. The Company had also expected to generate a marginal growth in the underlying operating margin during FY21. However, it had anticipated a decline in the underlying profit margin during H1 FY21 because of the adverse impact of the Covid-19 pandemic, higher cost inflation and increased marketing expenditure incurred in FY20. ULVR had made significant progress regarding the evolution of the portfolio, with strong growth in Prestige Beauty and Functional Nutrition. 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 progress of separation of Tea business, underlying sales growth during Q1 FY21, strong balance sheet, share buyback programme, consistent dividend payments, robust cash generation, 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 4,267.00 (as on 07 June 2021 at 09:18 AM GMT), with lower-double digit upside potential based on 22.33x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

*All forecasted figures and Peer information have been taken from REFINITIV.

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

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