I’m shopping for shares again, should I pop Unilever (LSE: ULVR) (NYSE: UL.US) into my basket?
Detergents and deodorants
Unilever is one of those companies I’ve always been meaning to invest in, but never got round to buying. It always looks too expensive. Some companies seem destined to shoulder hefty valuations, and it certainly hasn’t stopped Unilever from delivering healthy share price growth. Should I finally buy it?
Unilever’s first-half results included some superficially attractive numbers, including underlying sales growth of 5%, rising to 10.3% in emerging markets, a 2.6% rise in underlying volumes, and 4% rise in core earnings per share to €0.76. But dig deeper, and there were disappointments. Emerging market growth actually slipped, from 11.4% in the same period last year. Turnover rose just 0.4% to €25.5 billion. Developed markets fell 1.3% in the second quarter, and chief executive officer Paul Polman warned of “little sign of any recovery in North America and Europe”. Where the global economy goes, Unilever follows. The share price fell 3% as a result.
Good hair day
Unilever isn’t short of bright ideas. Its juicy product pipeline includes Knorr jelly bouillons (popular in Russia), baking bags (big in Latin America), compressed deodorants, Vaseline Spray & Go and Magnum 5 kisses. Its Home Care division grew 9.8%, driven by sales of premium laundry liquid technology in Sri Lanka and India, its Omo brand in Turkey and Vietnam, and newly-launched Cif and Domestos in Brazil. Unilever’s Personal Care division grew 8%, with hair, skin cleansing and deodorants all cleaning up. Food and refreshments, however, fell around 1%.
Unilever truly is a global company with vast opportunities, and has shown it can successfully adapt its products to local conditions. This is a company that can sell tea to Turkey and Cornettos to China, and pinpoint a market for powdered bouillons in Nigeria. But it is under pressure to deliver constant innovation, as economic conditions get tougher and competitors hungrier. Despite the challenges, management says it is on track to transform Unilever into a sustainable growth company. The recent dip in raw materials prices may help, but predicted increases in future food prices may hinder.
Taste test
Last time I looked at Unilever, in October, I thought it was expensive. But then, I always think that. The subdued reaction to its recent results could be a buying opportunity, although Unilever still isn’t cheap at 19.2 times earnings, against 13.31 for the index as a whole. At today’s price of £26.50, Unilever is 8% off its 52-week high. For that you get a 3.6% yield covered 1.7 times, just above the FTSE 100 average of 3.48%. Forecast earnings per share (EPS) is a disappointing at 1% this calendar year, but should rebound to 9% in 2014.
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> Harvey doesn’t own shares in any company mentioned in this article. The Motley Fool has recommended shares in Unilever.