Unilever PLC – Anticipating volume led competitive growth in FY20.

Unilever PLC is a FTSE 100 FMCG (fast-moving consumer goods) Company. It markets and produces a broad portfolio of products such as home care, food, beverages, health, and wellbeing products.

On 22 October 2020, the Company is expected to release the trading statement for Q3 FY20.

Recent News

10 August 2020: The UK Financial Conduct Authority has approved the prospects for the unification of the Unilever Group's legal structure.

Interim Results (for the six months ended 30 June 2020)


(Source: Company Website)

As per the H1 FY20 results released on 23 July 2020, the Company demonstrated the resilience of the business as underlying operating profit (excluding currency) increased 3.8% year-on-year, despite the slight decrease in turnover. Subsequently, underlying earnings per share shown growth of 6.4% year-on-year, and it maintained a stable quarterly dividend of €0.4104 per share. During the period, the Company completed the acquisition of the Horlicks brand from GSK, which would strengthen the nutrition business. It also announced plans to unify the Group legal structure under a single parent company.

One Year Share Price Chart

 

1-Year Chart as of 21 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Risk Assessments

The Company has limited suppliers from where it sources the strategic raw materials and any breakdown in the supply, especially considering the risk from Covid-19 and Brexit, would result in the Company's inability to manufacture and satisfy customer demand. Moreover, there is a shift in consumer demand with channel closures due to lockdown. Also, the volatility in the prices of commodities and raw materials can affect the operational margins.

Valuation Methodology

Recommendation: Unilever – BUY at GBX 4,465

During the H1 FY20, Unilever has shown continuous improvement in operational excellence and agility to adapt the unprecedented fluctuations in demand. Moreover, the unification of the Group’s legal structure will strengthen the strategic future. For the remainder of FY20, the Company will continue to deliver cash, and absolute profit with volume led competitive growth to maximise the shareholder value. Stock 52 week High and Low were GBX 5,333.00 and GBX 3,583.50, respectively. From the technical standpoint, shares were trading well above the short-term support level of 100-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Over the past 3 years (FY16 - FY19), the Company’s Net Income surged from EUR 5,547.00 million in FY16 to EUR 6,026.00 million in FY19. Compounded annual growth rate (CAGR) stood at 2.80 per cent.

Based on the operational excellence and resilience show by the business, which are supported by valuation done using the above method, we have given a “Buy” recommendation on Unilever PLC at the current price of GBX 4,465.00 (as on 21 August 2020, before the market close at 1.20 PM GMT+1), with lower double-digit upside potential based on 25.15x NTM Price/Earnings (approx.) on FY20E Earnings Per Share (approx.).
 
UDG Healthcare PLC – Remains a strong and well-diversified business.

UDG Healthcare PLC (LON: UDG) is a FTSE 250 listed healthcare service provider. It was established in 1948 and is headquartered in Dublin, the Republic of Ireland. It provides services related to the advisory, commercial, communication, clinical, technology and packaging services.

On 24 November 2020, it is expected to announce the preliminary results for FY20 (twelve months to 30 September 2020)

Recent News

5 August 2020: Shane Cooke has been appointed as Chair of the Board of UDG Healthcare PLC, with effect from 1 October 2020.

Trading Update - Q3 FY20 (from 1 April 2020 to 30 June 2020)

As per the Q3 FY20 update released on 5 August 2020, the business remained well-diversified with excellent long-term market fundamentals. However, some parts of the business were affected by Covid-19 pandemic. Subsequently, operating profit for Ashfield segment was well behind the same quarter last year though it is harnessing digital and technology solutions to serve the clients. Adjacently, Sharp division traded strongly, and operating profit was significantly ahead of the same quarter last year. Further, the Company announced the investment of $37.5 million in Berkshire Sterile Manufacturing Inc, for a 25% shareholding. It will expand Sharp's capabilities into sterile fill/finish manufacturing.

One Year Share Price Chart

 

1-Year Chart as of 21 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Risk Assessments

Economic and political uncertainties arising from Covid-19 mayhem and Brexit can impact the client base and activity level across the global operations. The Company is further exposed to currency, liquidity, credit, and interest rate risk during the pandemic due to global operations. Moreover, failure to meet the stringent regulatory requirements can cause financial penalty and significant liability over the business. Also, the inability to capitalise on expected synergy from the integration acquisitions can hamper the growth prospects of the Company.

Valuation Methodology

 
Recommendation: UDG Healthcare – HOLD at GBX 718.50

The Company continued the momentum of strong performance with some impact on Ashfield’s operating profit due to Covid-19 pandemic. It has strong financial and balance sheet position, which is reflected in their intention to pay the interim dividend and final dividend for FY20. There has been a strong demand for existing as well as newly launched products in the market. The positive market dynamics and growing FDA approvals would benefit the Group. The Company has a global presence and strong market position, which could enhance the business growth rate. UDG has a strong pipeline of investment opportunities which will fetch higher returns in the long-term. Stock 52 week High and Low were GBX 846.00 and GBX 423.40, respectively. From the technical standpoint, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Hold” recommendation on UDG Healthcare PLC at the current price of GBX 718.50 (as on 21 August 2020, before the market close at 8.20 AM GMT+1).
 
*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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