Sales at consumer goods giant Unilever (LSE: ULVR) rose by 5.4% on a constant currency basis during the first half of the year, while the group’s core earnings per share rose by 7.5% on the same basis.
However, this progress won’t be reflected immediately in Unilever’s profits. Unfavourable exchange rates meant actual sales fell 2.6%, while core earnings per share only rose 1.3%. Unilever’s share price was flat, following this morning’s results.
Unilever reports in euros, so the impact of recent exchange rate volatility has been less favourable than it has been for multinationals reporting in sterling. However, Unilever’s core operating margin rose by 0.4% to 14.4% during the quarter, suggesting costs remain firmly under control. Cash generation also remained strong.
The only question is whether the shares are too expensive to buy at the moment. Trading on almost 24 times 2016 forecast earnings, a lot of growth is already in the price. The prospective yield is now just 2.8%. I plan to wait for a cheaper opportunity before adding any more to my holding.
A return to profit growth
Shares of SSE (LSE: SSE) have risen 14% since closing at a low of 1,371p on 27 June. The utility firm’s share price wasn’t moved by this morning’s trading statement, which confirmed previous guidance for adjusted earnings of “at least 120p per share” this year and a dividend increase of “at least RPI inflation”.
The company is planning to spend £1.75bn on infrastructure projects this year, while also trimming some non-core parts of its portfolio. SSE’s strong focus on renewables remains a long-term attraction for income investors, in my opinion, as it should help offset long-term uncertainty about carbon costs.
Sentiment towards utilities has improved since the Competition and Markets Authority published its report into the UK energy market in June. Offsetting this is increased uncertainty relating to the UK’s decision to leave the EU.
I’m happy to trust the firm’s management to deal with these hurdles. I hold SSE shares for income, so my main concern is that the dividend remains affordable. The good news is that dividend cover has remained fairly stable at between 1.3 and 1.4 times over the last few years. Current forecasts suggest a payout of 89.8p this year, giving a prospective yield of 5.5%. I believe the shares remain a buy for income.
Crash landing?
Budget airline easyJet (LSE: EZJ) was one of this morning’s biggest fallers. The airline’s shares are down by 6% to 1,058p, at the time of writing.
easyJet said today that while passenger numbers rose by 5.8% during the third quarter, there was a 7.7% fall in revenue per seat to £54.54. The main reasons for this were “significant external events”, such as the Brussels attack and the 1,221 cancellations caused by severe weather.
I’m concerned that these significant events are masking an underlying slowdown in market growth for airlines. But I think easyJet remains one of the most attractive options in this sector.
easyJet’s share price has now fallen by 40% this year, leaving the shares trading on just 8.5 times 2016 forecast earnings. The expected dividend yield has now risen to 5.7%. Although the shares could have further to fall, I think easyJet may be starting to look like a reasonable contrarian buy.