Unilever Plc - Delivered a strong performance in Q3 FY20

Unilever Plc (LON: ULVR) is a FTSE 100 listed Company, which is engaged in fast-moving consumer goods business.

On 4 February 2021, the Company will release the 2020 full year & Q4 results.

Rationale for Valuation – Buy at GBX 4,327.00

• The volume-led growth underpins business resilience and its ability to respond to the changing market dynamics.
• 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.
• Over the past five years, the stock has outperformed the benchmark index (FTSE 100) by delivering a positive return of nearly ~58%.
• In terms of debt ratings, Moody has assigned a stable outlook with long-term credit ratings of A1.
• 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.
• From the technical standpoint, 14-day RSI stood at around 41.20, which is supporting the upside movement.

Key Risks

• The Covid-19 outbreak can cause massive supply chain disruption and increased operating costs.
• Moreover, extreme weather and water shortages can also impact the business.
• Lack of product regulations and product safety can lead to safety risks.

Q3 FY20 Trading Update (as on 22 October 2020)

(Source: Company Website)

• The Company delivered a strong performance in the quarter, with underlying sales growth of 4.4% YoY.
• However, total turnover declined by 2.4% due to a 7.7% negative currency impact against the same quarter of the previous year.
• The Emerging markets sales increased by 5.3% YoY, as Brazil and India returned to growth and China's recovery continued.
• Led by ongoing strength in North America, the Developed markets surged by 3.1% YoY.
• 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.
• The quarterly dividend per share maintained at €0.4104.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company delivered a strong Q3, with volume-led growth and rapidly changing dynamics across geographies, consumer segments, and channels. In FY20, the Company will continue to achieve volume-led competitive growth to deliver profitability for maximizing shareholder value.  Overall, ULVR has a strong cash and liquidity position. The business is delivering superior long-term financial performance through the sustainable business model. The stock made a 52-week low and high of GBX 3,583.50 and GBX 4,944.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” stance on Unilever at the current market price of GBX 4,327.00 (as on 12 January 2021, before the market close at 11:12 AM GMT), with lower double-digit upside potential based on 23.20x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

*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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