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.

On 10 February 2022, ULVR expects to release the full-year FY21 results.

Investment Rationale – BUY at GBX 3,729.50

• Business Simplification: ULVR has moved to a simplified organizational model and its structure business into five distinct Business Groups - Personal Care, Beauty & Wellbeing, Ice Cream, Home Care, and Nutrition.
• Lucrative Dividend Policy: ULVR has adopted a progressive dividend policy with consistent dividend payments for each financial quarter. The Company had paid an interim quarterly dividend of 35.98 pence per share with respect to Q3 FY21 on 01 December 2021. The ex-dividend date was 04 November 2021.
• Share Buyback Programme: ULVR had completed a share buyback programme of up to €3 billion on 03 December 2021.
• Strong Digital Capability: Unilever’s eCommerce sales increased by 38% year-on-year in Q3 FY21, and now it represents 12% of total sales.
• Technical Indicator: From a technical standpoint, the momentum oscillator, 14-day RSI (~42.63) indicates an oversold signal, while the stock price is trading around the lower Bollinger Band.

Risk Assessments

• Macroeconomic Uncertainty: As the Federal Meeting has signalled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.
• Market and Operational Risk: Consumer tastes and preferences are changing rapidly than ever before. Also, the volatility in the prices of commodities and raw materials can affect the operational margins.

Q3 FY21 Trading Update (as on 21 October 2021)

 (Source: Company Website)

• Sales Growth: During Q3 FY21, sales grew 2.5% year-on-year with 4.1% increase in price and 1.5% decline in volume.
• Share Repurchase: The ongoing share buyback programme of €3 billion is expected to be completed by the end of FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

The Company had recently announced strategic pathways to reposition Unilever's portfolio into higher-growth categories. Adjacently, Unilever demonstrated resilience in FY21 so far amid heightened volatility and uncertainty. Moreover, the unification of the Group’s legal structure will strengthen the strategic future. The stock made a 52-week High and Low of GBX 4,388.00 and GBX 3,450.00, respectively.

Based on the increased revenue, strong capital position, good progress in its growth vectors, business simplification, and favorable valuation conducted above, we have given a “BUY” stance on Unilever PLC at the current market price of GBX 3,729.50 (as of 2 February 2022, at 8:05 AM GMT), with a lower double-digit upside potential based 21.20x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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. 

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 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 unfavorable movement in the stock prices.

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