ii view: Unilever flags rising costs

Having underperformed the FTSE-100 index over the last year, we assess prospects.

First-half results to 30 June

• Turnover up 0.3% to €25.8 billion
• Adjusted or underlying sales up 5.4%
• Adjusted earnings per share down 2% to €1.33
• Quarterly dividend of €0.4268 per share
• Share buyback programme of up to €3 billion underway
• Net debt of €22.4 billion, up from €20.9 billion as of 31 December 2020

Chief executive Alan Jope said:

“We are making good progress against the strategic choices outlined earlier this year, including the development of our portfolio into high growth spaces. 

“Competitive growth is our priority, and we are confident that we will deliver underlying sales growth in 2021 well within our multi-year framework of 3-5%, despite more challenging comparators in the second half.  We have seen further cost inflation emerge through the second quarter.”

ii round-up:

Sales for consumer goods giant Unilever (LSE:ULVR) are split almost equally between Beauty & Personal Care and Foods & Refreshment at around 40% each. Home care accounts for the balance.

Its approximately 400 brands include Dove, Sunsilk, Comfort, Knorr and Domestos.

Unilever products are available in 190 countries.

For a round-up of these half-year results, please click here. 

ii view:

Fast-moving consumer goods giant Unilever has been busy rejigging its portfolio of businesses into high growth arenas. A sale of its increasingly out of favour tea business was previously signed, while it recently agreed to buy digitally-native skin care brand Paula's Choice.

Almost 60% of its sales were generated in emerging markets. Its ecommerce business has grown to account for 11% of sales. In 2020, half of its global turnover came from its 13 biggest brands. 

For investors, a retreat in the profit margin during this latest half year offers some caution, pressured by rising input costs and required investment spend. Economic outlook uncertainty given reduced government assistance following the worst of the pandemic may also add pressure for consumers to trade away from its premium brands. 

That said, a historic and forecast dividend yield of over 3% is not to be dismissed in the current ultra-low interest rate environment. A share buyback programme of up to €3 billion also offers some support. In all, and with the shares currently trading close to the current consensus analyst estimated fair value price of £44.69, the shares for now look up with events. 

Positives: 

• Provides diversity in both product type and geographical location
• Defensive qualities in uncertain times

Negatives:

• Rising cost pressures
• Discount retailers often only stock their own branded labels

The average rating of stock market analysts:

‘Cautious buy’