Is It Safe to Remain Invested in UNILEVER Stock (ULVR)?

  • Feb 20, 2019 GMT
  • Team Kalkine
Is It Safe to Remain Invested in UNILEVER Stock (ULVR)?

Company Overview

Unilever, headquartered in London, is a producer and marketer of fast-moving consumer goods (FMCGs) such as food, beverages, home care, health and wellbeing products. The company operates through more than 400 brands across the Americas, Europe, Asia-Pacific, Africa and the Middle East regions. Core business segments are Home care, Personal care, Foods, Refreshment and Others. The major brands comprise Knorr, Hellmann’s, Lipton, Wall’s, Lux, Dove, Rexona, Surf Excel, Comfort, Sunsilk, Pureit, Suave and Axe, to name a few. Its distribution channels include supermarkets, hypermarkets, wholesalers, cash and carry, small convenience stores, e-commerce, out-of-home and direct consumer channels. The company has pledged to reduce its carbon footprint extensively by 2030 and was ranked number one in its sector as per Dow Jones Sustainability Index 2017. 

Key Financial Metrics (€ million)

(Source: Company Filings)

 

Key takeaways from the 2018 Annual Report

  • In the financial year 2018, reported revenue declined by 5 per cent to Euro 50,982 million as compared to the previous financial year 2017.
  • For underlying sales growth excluding spreads, an increase of 3.1 per cent was reported, it includes 1 per cent price and 2.1 per cent volume.
  • The operating income grew by 41.5 per cent to Euro 12,535 million in FY 2018 against Euro 8,857 reported in FY17.
  • Net income attributable to shareholder’s equity rose to Euro 9,389 million in FY18 from Euro 6,053 million reported in FY17.
  • Driven by a €4.3 billion profit on the disposal of spreads, operating margin increased by 810bps and diluted EPS up by 62 per cent.
  • Underlying EPS increased by 5.2 per cent; constant underlying EPS was up by 12.8 per cent.
  • Cash and cash equivalents reported as on 31st December 2018 were Euro 3,230 million, down by 2.62 per cent as compared to FY17 data.
  • Total debt as reported for the financial year 2018 surged by 1.86 per cent to Euro 24,885 as compared to FY17 data.

Operational Review

(Source: Company’s Annual Report)

 

Asia/AMET/RUB

Underlying sales (vol.) grew by 4.3 per cent. Overall it rose by 6.2 per cent. Pakistan and Bangladesh continued to show good growth, India was at the top of the game with good momentum giving double-digit growth across the divisions.

 

The Americas

Underlying sales grew by 0.9 per cent in North America. The competitive pressures in tea and dressings resulted in offset of sectors showing strong performances – home care, skin cleansing and deodorants.

 

Europe

Underlying sales reported 0.7 per cent growth, all via volume. The excellent weather and unique innovation plan helped along with growth in the ice cream segment.

Key Ratios

(Source: Thomson Reuters)

 

Ratios Commentary

  • The company’s profitability ratios are better than the industry peers. In 2018, profitability margins improved significantly when compared with last year data.
  • The Current ratio saw a 6.9 per cent increase in FY18, at 0.78 it was much lesser than the industry average of 1.28.
  • The company looks leveraged than the industry while debt-equity ratio surged consistently from last 2 years and seemingly indicates financing towards growth prospects.

Recent News         

On 5th February 2019, Unilever announced that it has acquired the London based healthy snacking brand, Graze, for an undisclosed sum. Since 2008, without the use of any artificial ingredients, Graze has been in the business of providing customers with seeds, trail mixes, snack nuts and bars. Unilever food and refreshment segment president, Nitin Paranjpe noted that Graze is currently the number one brand in Britain, segment-wise.

The Company is working towards building a cross-media measurement model so that brands can gauge campaign impact across the landscape of media sources. It is a holistic measurement system in which Unilever has engaged with other industry bodies and World Federation of Advertisers (WFA), to speed up the solutions for the industry.

 One Year Stock Performance

(Source: London Stock Exchange)

 

Stock Price Commentary

  • On 19th February 2019, Unilever share closed at GBp 4,209.0, down by 1.13 per cent against its previous day closing price.
  • Stock's 52 weeks High and Low is GBp 4,503.66/GBp 3,678.50. At the closing price, the stock was trading 6.54 per cent lower than its 52w High and 14.42 per cent higher than its 52w low.
  • In the last one year, the share rose by 12.78 per cent.
  • The 5-day average trading volume of the stock was 1,739,649.80, and 30-Day Average was 2,075,222.57.
  • Average traded volume for 5 days was down by 16.17 per cent as compared to 30 days average traded volume.
  • On the valuation front, the stock was trading at a trailing twelve months PE multiple of 20.0x as compared to the industry median of 9.9x.
  • The company’s stock beta was 0.87, reflecting relatively less volatility as compared to the benchmark index.
  • Total outstanding market capitalization was around £108.68 billion.

Risks Assessment and Growth Prospects

  • In 2019, the company expects the market environment to remain challenging with downward pressure on sales.
  • The company can significantly benefit from leadership positions of many of its brands, providing them with many opportunities.
  • With a wide range of regional market, the company operates globally and is highly exposed to economic and political instability, like Brexit and US-China trade war. Such events may cause disruptions in supply chain as well as affect the sales.

Conclusion

While broad-based challenges can be seen ahead of the group, given the current trading levels which indicate the stock movement towards 52-week high with support coming from few growth drivers, market can keep a watch on Unilever going ahead.

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