Unilever Plc

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.

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

Rationale for Valuation – Buy at GBX 4,119.00

• 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 began the year in good shape and maintained its dividend, with an increase of 4% in Q4 dividend per share.
• In terms of debt ratings, Moody has assigned a stable outlook with long-term credit ratings of A1.
• The Company has decent fundamental metrics as it has maintained a ROE above 10% in the last three years.
• From a technical standpoint, 20-day SMA (GBX 4,030.45) supports an upside potential.

Key Risks

• 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.
• Furthermore, the Company generates more than 50% of the turnover from emerging countries; hence ULVR is exposed to the risk regarding political and economic uncertainty.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 10 March 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 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).
• Net profit from joint ventures and associates was in line with the previous year.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company started the year 2021 in good shape and is delivering superior long-term financial performance through the sustainable business model. 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. 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. Overall, the Company would generate long term value for its shareholders through the strong portfolio, robust cash flow and growing dividends. The stock made a 52-week low and high of GBX 3,721.00 and GBX 4,944.00, respectively.

Based on the factors discussed above, we have given a “BUY” recommendation on Unilever Plc at the current price of GBX 4,119.00 (as on 8 April 2021 at 10:35 AM GMT) with a lower double-digit upside potential based on 21.88x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Dunelm Group Plc

Dunelm Group Plc (LON: DNLM) is a FTSE 250 listed homewares retailer based in the UK, which operates nearly 173 stores and trades online.

On 14 July 2021, the Company will release its Q4 trading update.

Rationale for Valuation – Buy at GBX 1,377.00

• The Company has decent fundamental metrics as it has maintained a ROE above 12.7% in the last four years.
• It is a highly cash generating business, which is continuously investing to maximise long-term growth.
• Over the past three years (H1 FY18 to H1 FY21), gross margin and net margin have remained above 49% and 4.3%, respectively, reflecting decent fundamentals.
• In the last year, DNLM’s stock price has delivered a return of ~75.62% as compared to the FTSE 250 index, which shows that the stock has outperformed the benchmark index.
• From a technical standpoint, 200-day SMA (GBX 1,296) supports an upside potential.

Key Risks

• Inability to deliver proper products timely to the customers could hamper the reputation of the Company.
• Brexit could impact sales and margin of the Company due to a downturn in consumer demand.
• Failure to respond to changing consumer needs could affect the revenue of the Company.

Q3 FY21 Trading Update (for the 13-week period ended 27 March 2021, as on 8 April 2021)

(Source: Company Website)

• During the quarter, the total sales decreased by 16.8% YoY; however, the digital sales have more than trebled since the corresponding period of the last year.
• Led by the reduced scale of the Winter Sale, the gross margin increased by 30bps YoY in Q3 FY21. Moreover, on a year-to-date basis, gross margin surged by 50bps YoY.
• On 27 March 2021, the net cash was £40.2 million, with a working capital outflow of around £90 million.
• The inventory balance increased to £193 million as of 27 March 2021 as compared with the same period last year.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company expects a strong consumer response, with 13 stores in Scotland opened on 5 April 2021. Further, it expects 156 stores in England and Wales will re-open on 12 April 2021. The gross margin for Q4 FY21 is expected to be ahead of the same period last year. The Company stated that it has been more confident regarding the future, albeit the near-term outlook is uncertain. Dunelm is a market leader and consistently growing active customers to meet its long-term objectives. Moreover, the Group has a solid liquidity position to invest in long-term growth opportunities. The stock made a 52-week low and high of GBX 709.86 and GBX 1,601.48, respectively.

Based on the factors discussed above, we have given a “BUY” recommendation on Dunelm Group Plc at the current price of GBX 1,377.00 (as on 8 April 2021 at 10:45 AM GMT) with a lower double-digit upside potential based on 30.70x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peers Information have been taken from Refinitiv, Thomson Reuters.

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

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