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 28 April 2022, ULVR expects to release its trading statement for Q1 FY22.

Investment Rationale – BUY at GBX 3,508.00

• Commencement of 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.
• Dividend Growth: Following the 5.5% YoY growth in underlying earnings per share, dividend per share also grew by 3% YoY in FY21.
• Decent Outlook: For FY22, ULVR expects the underlying sales growth to be in the range of 4.5% to 6.5%, supported by the strong pricing environment.
• Business Simplification: ULVR has moved to a simplified organizational model and structured its business into five distinct Business Groups - Personal Care, Beauty & Wellbeing, Ice Cream, Home Care, and Nutrition.

Risk Assessments

• Emerging Risk: Rapidly changing consumer tastes and preferences, disruptive technological changes, water scarcity, and ban on plastic packaging.
• Interest Rate Hike: The Federal Reserve announced a first interest rate hike (by 0.25%) in over three years and indicated seven rate hikes in 2022.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market. The soaring energy costs can squeeze household spending.

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.
• Profitability: The underlying earnings per share jumped 5.5% year-on-year, while there was a 3% year-on-year growth in dividend per share.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Accrol Group Holdings PLC, Reckitt Benckiser Group PLC, and Kerry Group PLC.

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

*1.00 Euro = ~0.84 British Pounds.

Conclusion

The Company had recently announced strategic pathways to reposition Unilever's portfolio into higher-growth categories. Adjacently, Unilever demonstrated financial resilience in FY21.  Moreover, the unification of the Group’s legal structure will strengthen the strategic future.

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 increased turnover, 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 closing market price of GBX 3,508.00 (as of 1 April 2022), with a lower double-digit upside potential based 20.22x 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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