cont ........... In December, Unilever disclosed its intentions to separate its developed market spreads business into a standalone segment, which will be 100% owned by the parent company; however, we don't think this will meaningfully change the business’ prospects. Rather, we think this news signals the business is noncore, despite management’s commentary to the contrary, and could eventually lead the firm to cut ties with this flagging segment, in line with recent efforts. - See more at: http://www.morningstar.co.uk/uk/news/133410/unilever-retains-economic-moat.aspx#sthash.3e0oK0SP.dpuf
23 Jan '15
Morningstar's Erin Lash take Pt1
Intense competitive pressures and tepid consumer spending persist, as evidenced by Unilever’s (ULVR) results, but we contend the firm’s brand intangible asset and cost edge, which form the basis of our wide moat, remain firmly in place. While we aren’t adjusting our EUR 33 fair value estimate, we’re now incorporating spot exchange rates to value its other share classes, which drives our fair value estimate changes to £24.92, down from £26.83. This will enable us to more appropriately account for the present environment, and our fair value estimates will continue to ebb and flow with spot rate changes. For the quarter, organic sales rose 2.1%, reflecting higher prices as volumes slipped 0.4%. Emerging markets, which make up 57% of sales, have slowed significantly from a year ago, up just 5.7% for fiscal 2014 compared with 8.7% growth in fiscal 2013. However, we believe the firm’s tenure in these regions which dates back more than 50 to 100 years in some instances and its subsequent grasp of consumer trends, combined with investments in new products and marketing will ensure Unilever is well positioned when growth resumes. North America posted 2% underlying sales growth driven by a balanced contribution from price and volume, though we aren’t blind to the fact that this compares to a weak period last year, when sales fell 2.4%. Given management’s commentary that promotional spending in U.S. hair care and deodorants is running rampant, it will take a few more quarters before we view this uptick as sustainable. Unilever’s efficiency initiatives appear to be gaining traction, as core operating margins expanded 40 basis points to 14.5%. The company noted that 20%-25% of its EUR 20 billion cost base is at least partly affected by oil prices, which should prove a low-single-digit tailwind in the 2015. We still expect operating margins to improve to around 16% over our 10-year explicit forecast. Emerging markets were again weighed down by trade destocking in Chinese hypermarkets, hampering sales in the country, which represents about EUR 2 billion in annual sales or 4% of its total, by around 20%. The impact is likely to be felt through the first quarter of 2015, given the tough comparison from a year ago. Management still expects growth to resume over the course of the year, though, as consumer demand has not subsided to the same degree, which we perceive to be reasonable. Food remained a weak spot, with underlying sales down 0.6% in fiscal 2014. Spreads, about 7% of consolidated sales and 10% of operating income, has been Unilever’s Achilles’ heel within this business, with underlying sales falling more than 3% in fiscal 2013 and down a similar level through the first nine months of this year. Management didn’t quantify the decline in the fourth quarter but we don’t suspect it materially improved.
22 Jan '15
RE: Daily Telegraph
I used to read and take note of Questor only because it seemed more substantial and factual that say tips in the Sun. Although I have learned that most tips are just that, one persons opinion. My concern is that I bought for the rising divi and it has done well for me over the period I have held but as the divi is paid based on euros, this has knocked what would have been a good rise. What will QE do to this. I assume that the Euro is likely to fall (that is their plan isn't it) so ULVR might have to run just to stand still. More worryingly is the SP might artificially inflate and it will be difficult to tell the real improvement from the other. I have previously stated I would like some more but cant seem to find a cheap opportunity to add but maybe Im just being greedy. So it look like I will be taking Questors advise and holding but I already knew that before they published.
21 Jan '15
China slowdown hits Unilever sales: The FTSE 100-listed company, which makes Dove soap, PG Tips and Domestos, desperately needs strong growth in emerging markets to offset more mature economies in the west. The Chinese economy reported its slowest growth in 24 years and this has a knock on effect for consumer goods companies. Unilever reported sales growth in the fourth quarter of 2.1%, which was behind market expectations for 2.6% and a slowdown from the 3.2% reported in the first nine months of the year. The company said that actual reported revenue figure, which includes currency movements was down 2.7% to €48.4 billion for the year as a whole. The weakness in China dragged down sales growth across Unilever’s Asian, African, Middle Eastern and East European emerging markets to 2.1% in the fourth quarter, from 3.1% in the third quarter and less than half the 7.8% growth in 2013. On the one hand, Unilever will get a boost as manufacturing costs fall and households have more money in their pockets, said Mr Huet. But falling prices in Europe and a supermarket price war in the U.K. will make it difficult for Unilever to drive sales growth through price increases. The company generated free cashflow of €3.1 billion down from €3.9 billion in 2013. Unilever has an excellent track record of regular quarterly dividend payments that increase by about 3.5% a year. However, net debts increased to €9.9 billion and that is against a balance sheet with net assets of €13.6 billion. The shares are now looking expensive, trading on 20.5 times forecast earnings of 176 cents (135p), falling to 19 times next year for a company that is only delivering single digit earnings growth. Unilever also has falling revenue and rising debts. Until we get more clarity on sales for the year ahead, we retain a hold. Unilever at £27.13-16p. Questor says “Hold.”
20 Jan '15
The board summed up the results with things will get better later in the year. for me the divi, which is important to myself, was held, although it did go up 6% last qtr. With debt and pension increasing, out of context seem quite bad. FCF would cover that debt, nearly. It looks like they are trying to adapt to the changing wider environment and FX that has been working against them. I wonder how future issues such as euro QE might effect my investment? The divi might fall in relative terms as the euro weakens, will the sp rise?
5 Dec '14
Unilever: I can’t believe its not a spin-off: Margarine and other spreads are 7% of sales and although Unilever is taking market share, it is a declining market. So the unit is a drag on growth. On Thursday, Unilever said it would put most of the spreads business into a standalone unit so that a dedicated team can focus on turning it around. It is not, Unilever insists, the first step towards a full separation. And the group’s management seems more enthusiastic about other parts of the empire. Over the past six years it has sold €2.8 billion of turnover, mainly in foods. Pasta sauces, peanut butter and diet drinks have all been shown the door. In the same period it has bought €3 billion of turnover, mainly in personal care. True, by spinning off foods Unilever would lose a cash machine that can fund growth elsewhere, but with net debt (according to Jefferies) of just one times earnings before interest, tax, depreciation and amortisation, the group has plenty of flexibility. The combined market capitalisation of the two companies is $100 billion. The internal separation Unilever has proposed looks like a messy halfway house, and raises questions about how committed the company is to food in general and spreads in particular. It should dispel those questions, and be decisive.
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