Domestos, Dove, Persil and Surf are among Unilever’s best known products. They are also some of the trusted brands that we turned to in lockdown when big names spelled reassurance.
But, since the beginning of the year, the consumer goods company’s shares have gone almost nowhere.
Strange, because when people took a break from cleaning, they drank a cup of PG Tips, spread Marmite on toast, or tucked into Ben and Jerry’s Netflix & Chill’d ice cream, sampling more of the business’s merchandise.
This week, in what has been called a seminal moment in its history, Unilever achieved its aim of unifying its UK and Dutch arms, moving its legal base to London. Yesterday the shares traded in Amsterdam for the last time.
This manoeuvre ended a cumbersome system, put in place 90 years ago after the merger of the British soap company Lever and the Dutch Margarine Unie.
Will the new status – under which there will be ‘one class of shares, one market capitalisation and one global pool of liquidity’ – bring a reassessment of its value?
Although unification was spurred by a takeover approach in 2017 from Kraft-Heinz, the real aim is to make it easier to buy and sell businesses.
A transformational deal would thrill the market. But, for some, Unilever is already a star. Rob Burgeman of Brewin Dolphin says: ‘It’s a great company in which to own shares.
‘It makes real things that real people need – and pays a real dividend. The yield is 3.29 per cent.’
This commendation will bring cheer to Unilever’s 36,000 small shareholders who need take no action in response to the unification. Two years ago, in a victory for shareholder democracy, they helped overturn a move, under the former chief executive, to base Unilever in the Netherlands that would have meant its removal from the FTSE 100.
This would have represented a takeover without a premium and index funds would have been forced to sell.
Business Secretary Alok Sharma sees the choice of London, led by current boss Alan Jope, as a ‘clear vote of confidence in the UK’.
Investors may be gratified by this and the dividend. But many would also like Unilever, the bulk of whose brands are mass-market, to seek out more higher-income consumers.
The company has taken a step towards this goal by acquiring luxury cosmetics and skin care businesses like Hourglass, Ren and Carver Korea. That country’s beauty sector is forecast to be worth £16billion by 2026.
This diversification, on top of the benefits that may flow from unification, may stir the interest of anyone thinking of a December portfolio reshuffle.
Unilever may be fighting against supermarket own-brand goods and newly-created brands. But its global distribution networks represent a powerful barrier to competition.
For Paul Clifford of South African financial services group Sanlam, this resilience is a key attraction. But the company has also something to offer if you want more of an ESG (environment, social and corporate governance) bias in your portfolio.
This week Unilever unveiled a drive to create a more sustainable coconut industry – coconuts are a key ingredient in food, personal care and products – and allowed staff in New Zealand to work a four-day week.
Clifford said: ‘We like the direction they are taking in reducing food waste, and embracing plant-based sourced food.’
Unilever’s Vegetarian Butcher division will supply the plant-based Rebel Whopper to Burger King and the company hopes for £900m of sales from such dishes by 2027.
Over the past decade, Unilever has cut production of carbon dioxide emissions by 52 per cent and last month it was named personal products industry leader in the S&P Dow Jones Sustainability Index, scoring 90 out of 100 in a range of ESG criteria.
Martin Deboo of Jefferies, who is targeting a price of 5500p for Unilever – the shares stand at 4326p – argued that unification may be a ‘fresh buying opportunity’.
Some investors have already been betting on a boost for Unilever. City of London, which has a 4 per cent stake, was one of last month’s best selling trusts.
Finsbury Growth & Income investment trust has 10 per cent, while Lindsell Train Global Equity fund has 8 per cent. Their manager, the highly respected Nick Train, likes Unilever’s ‘incredible predictability’.
Let’s not underestimate this quality, while hoping for some nice surprises as well.
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