Unilever PLC – Volume-led growth demonstrated portfolio resilience.

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 4 February 2021, ULVR expects to release full-year results for FY20.

Investment Rationale – Buy at GBX 4,338.00

• On 30 November 2020, it announced the completion of the unification of its Group legal structure under a single parent company, Unilever PLC. The unification shall provide greater flexibility for strategic portfolio change, further improved governance, and remove complexity.
• From a technical standpoint, 14-Day RSI (45.03) is supporting the upside potential.
• Over the past five years, the stock has outperformed the benchmark index (FTSE 100 with a return of around ~8.11%) by delivering a positive return of nearly ~55.30%.
• As per valuation metrics, EV/Sales, EV/EBITDA, and Price/Cash Flow multiples of the Unilever are currently lower as compared to the corresponding multiples of the Consumer Non-Cyclicals sector.
• Over the past four years, ULVR’s EBITDA margin and net margin have remained above 22.20% and 10.00%, respectively, which is higher than the industry median.
• Among emerging markets, India and Brazil markets returned to growth while China continued recovery.

Risk Assessments

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

Recent News

14 December 2020: Unilever is seeking approval from shareholders for climate transition action plan, whereby it targets zero emission from its own operations by 2030 and a 50% reduction in the average footprint of its products by 2030.

Q3 FY20 Trading Statement (as on 22 October 2020)

 (Source: Company Website)

• The underlying sales in Beauty & Personal Care, Home Care, and Foods & Refreshment grew by 3.8%, 6.7%, and 3.7% respectively, against Q3 FY19.
• ULVR’s underlying sales growth improved by 4.4% year-on-year. However, total turnover declined by 2.4% due to a 7.7% negative currency impact against the same quarter the previous year.
• The underlying sales in developed and emerging markets grew by 3.1% and 5.3%, respectively, against Q3 FY19.
• The quarterly dividend of €0.4104 per share is payable in November 2020.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

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. The volume-led growth reflected the resilience of the product portfolio and its ability to respond to changing dynamics across consumer segments, geographies, and channels. Moreover, the unification of the Group’s legal structure will strengthen the strategic future. Stock 52 week High and Low were GBX 4,944.00 and GBX 3,583.50, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on Unilever PLC at the current market price of GBX 4,338.00 (as on 15 December 2020, before the market close at 12.55 PM GMT), with lower double-digit upside potential based on 21.64x Price/NTM Cash Flow (approx.) on FY20E Cash Flow Per Share (approx.).

Moneysupermarket.com PLC - Continued to benefit from a strong balance sheet and robust operating cash flows.

Moneysupermarket.com Group PLC (LON: MONY) is an FTSE 250 listed Company, which provides price comparison services through three brands - TravelSupermarket, MoneySuperMarket, and MoneySavingExpert.

Investment Highlights – BUY at GBX 254.60

• The Company continued to make progress on Reinvest strategy and experienced a robust performance of Decision Tech with the launch of automated energy switching on MoneySavingExpert.
• Since H1 FY15, gross margin and EBITDA margin have remained above 65% and 34%, respectively, which are substantially higher than the industry median.
• In terms of technical indicator, 14-day RSI is supporting the upside potential.
• Maintained the interim dividend despite the challenging trading conditions.

Key Risks

• The Company operates in a highly competitive and dynamic marketplace.
• MONY may experience operational glitches, which may result in the transfer of incomplete or incorrect data to or from partners, which could negatively impact brands reputation.

Q3 FY20 Update for the quarter ended 30 September 2020 (as on 22 October 2020)

(Source: Company Website)

• During Q3 FY20, revenue declined by 16% with ongoing COVID-19 disruption affecting several channels.
• The performance of insurance was slightly ahead of June, while the Motor division continued its strong performance.
• The trading dynamics in Money division were similar to Q2 FY20 with low product availability in banking and tightened lending criteria.
• The Group maintained a strong balance sheet and robust operating cash flows.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Under Insurance division, the motor has benefitted from strong but slowing market growth. The Company has seen little improvement in lending criteria or banking product availability; however, the travel market remained severely disrupted. However, the Group benefits from strong brands and high levels of cash conversion, which ensures its decent position to weather the period of economic uncertainty and deliver future growth.

Moreover, the Company has a strong net cash position of £5 million (as of 30 September 2020) after making dividend payments. MONY maintained interim dividend, which reflects, confidence in the business model and strong cash flow characteristics. The stock made a 52-week high and low of GBX 368.85 and GBX 210.00, respectively.

Based on the above rationale and support from the valuation as done using the above method, we have given a “BUY” recommendation on Moneysupermarket.com Group PLC at the current price of GBX 254.60 (as on 15 December, before the market close at 10.50 AM GMT), with lower double-digit upside potential based 24.18x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

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

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

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.