Unilever PLC

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

Investment Rationale – BUY at GBX 3,483.44

• Positive Trading Update: On 28 April 2022, ULVR unveiled Q1 FY22’s trading update and reported
  • 7.3% and 8.3% YoY growth in underlying sales and price, respectively.
  • Turnover increased by 11.8% YoY, while the quarterly dividend was maintained at €0.4268 per share.
  • It also commenced the first €750 million tranche of up to €3 billion share buyback programme.
• Organisational Change: The Company aims to simplify its business model and expects to complete implementation of a new structure by the middle of 2022. It will bring €600 million of cost savings over two years.
• Business Guidance: For FY22, ULVR expects the underlying sales growth to be towards the top end of the guided range of 4.5% to 6.5%. The underlying operating margin is expected to be within the range of 16% to 17%.
• Technical Indicator: From a technical standpoint, the momentum oscillator, 14-day RSI (~41.57), indicates an oversold signal, while the stock price is trading around the lower Bollinger Band.

Risk Assessments

• Inflated Cost: ULVR had anticipated a high input cost inflation of around €2.1 billion during H1 FY22 due to the outbreak of war in Ukraine, and Covid-19 impact on operations.
• Macroeconomic Uncertainties: The monetary policy tightening, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.

Recent News

Share Buy-Back Programme: On 23 March 2022, Unilever announced the commencement of buying back shares with an aggregate value of up to €3 billion, which is to be conducted over the next two years.

Full-Year Results (for the year ended 31 December 2021, as of 10 February 2022)

 (Source: Company Website)

• Turnover: During FY21, turnover increased by 3.4% year-on-year despite a negative impact from currency, reflecting a positive impact from acquisitions.
• Share Buyback: The Company had completed €3 billion of share buybacks in 2021.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

*Peers: Reckitt Benckiser Group PLC, A G Barr PLC, and Hotel Chocolat Group PLC.

*All selected peers are LSE listed Companies from the Consumer Staples sector.

*1 EUR=~0.85 GBP. 

Conclusion

ULVR had made significant progress through the establishment of fast-growing new businesses of scale in Prestige Beauty and Functional Nutrition, and the divestment of Spreads and Tea. Overall, the Company remained on track to deliver sustainable growth for the shareholders through a sound business model, strong cash generation and consistent dividend payments.

Please note, markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the decent fundamentals, business simplification, and favourable valuation conducted above, we have given a “BUY” stance on Unilever PLC at the current market price of GBX 3,483.44 (as of 27 May 2022, at 10:26 AM GMT+1), with a lower double-digit upside potential based 19.39x Price/Earnings (approx.) on FY22E Earnings Per Share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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