Friday 21 February 2014

Analysis of Unilever

A Dutch-British consumer products company

Company: Unilever

Business: A Dutch-British consumer product giant. They have several well known brands such as Dove, Axe, Lipton, Ben & Jerry's, Knorr, Vaseline, Cif, Bertolli etc. For the more complete list of brands please look here however they have in total over 400 brands so they only show the most successful ones.

Active: World wide. Their products are sold in over 190 countries of which 55% of the revenue comes from the emerging markets.

P/E: 17.4

Comment: I have started to see a couple of Happiness Stations appearing here in Berlin and sometimes it is only the Happiness Station and sometimes it is with the Dutch pancakes that are either made sweet or are made into something similar to pizza. This Happiness Stations with the "heart brand" ice cream (different country different name... Wall's, Langnese etc.). Each time I go past one of them it is completely full with people standing in line to buy ice cream. I am sure that for Unilever this is a only a small stream of revenue but what I like is that they have started up a new concept to push out their own ice cream directly to the consumer without being forced to share revenue with the ice cream sales person. The also step in with an alternative to pizza. When I see things like this happening close to me then I guess they have a good management that are also making clever decisions elsewhere. But maybe that is just wrong.

contrarian values of P/E, P/B, ROE as well as dividend

The P/E for Unilever is too high for me with 17.4 and the P/B is far away with 5.9 which gives a very clear no signal from Graham. Their earnings to sales are however excellent with 10%, the ROE is spectacular with almost 34% and the book to debt ratio is ok with 1.1. In the last five years they have had a yearly growth of 4.6% which is good for such a giant and this gives us a motivated P/E of 16 to 18 which means that Unilever today is being fairly valued by the market. They pay a very nice dividend of 3.8% which represents 67% of their earnings so on the border for being too high.

Conclusion: Some key values are indeed excellent and others are so, so. Graham says no to this one but for me it is not so easy. When I see Unilever I get the feeling that maybe I can buy a great company at a fair price? A company that are even starting new interesting concepts that I see upfront are working nicely. On the other hand... How easy is it to double 50 billion euro in revenue? When one get up that high it is not easy to keep up with growth and especially not growth expectations from analysts. So I will keep Unilever in my sight and I really do not know what to do.

What do you say? Is it a great company at a currently fair price?

If this analysis is outdated then you can request a new one.


Chris Bailey said...

Interesting ice cream insights! Unilever has many positives attributes and traits derived from its brand portfolio. I agree that quantitatively today it is not compelling (my own methodology suggests <£22 equiv to <Euro26/share as per here

I am enjoying the broader geographic spread of some the daily stock commentary over recent weeks. Keep it up. We all become better investors by looking at companies in other countries.

Hope your portfolio is progressing well

Fredrik von Oberhausen said...

26 € per share would indeed be nice Chris! My worries are if a company like Unilever ever drops down that low and will it ever drop down below P/E 10 that I love so much?

I have the problem that I was not dealing with stocks before the 2008/2009 crisis. This means that when I look back at that period then ALL the stocks were cheap and could be bought at extremely low P/Es but those type of crashes comes so rarely and I should not expect to be able to find companies as cheap as they then were... but still I do expect that.

Hmmm... I will keep thinking about Unilever and keep observing the people buying the ice cream and even try it myself before I make my final call on Unilever.

Chris Bailey said...

Back in 2008-9 stocks did not necessarily feel cheap as earnings expectations were suitably compressed. The key was to use the ultra low investor sentiment combined with the anticipation of global central bank action to stabilise the situation. Once the stabilisation perception kicked in again...then people started to extrapolate into the future again.

£22/Euro26 on Unilever may or may not come - and of course it may or may not be the right thing to wait for this level - but it is certainly right to get yourself into a psychological framework where a period of high volatility is perceived as more of an opportunity than a threat. You kept a cool head in January when others lost theirs, so despite your lack of 2008-9 real time experience, keep learning/thinking/reacting.

Time now for even me to switch off my least until Saturday morning :-) Investment is a nice obsession to have (and hopefully profitable too).

Have a good weekend

John Magic said...

Did you perform a comparison with Nestlé? That could be interesting, and is a good blogging concept, an X vs Y fight.

Fredrik von Oberhausen said...

Hi John Magic,

No I have not looked at Nestlé yet but it is a good suggestion so I will do so. I should probably look at some of the big americans there also.