Unilever (ULVR) Price: £39.93

Gain to date: 4.6%

We suggested investors buy fast-moving consumer goods goliath Unilever (ULVR) at £38.19 in January 2024 on the grounds the Marmite-to-Hellmann’s maker’s intrinsic strengths were underappreciated by the market. Poor sentiment reflected market share losses for some key brands amid cost-of-living squeeze-induced consumer downtrading, and there had been an underwhelming reaction to new chief executive Hein Schumacher’s plan to ‘drive growth’ and ‘unlock potential’.

WHAT HAS HAPPENED TO SINCE WE SAID TO BUY?

Shares in the Comfort fabric conditioner-to-Cornetto ice cream supplier rallied on full year results (8 February) showing a return to volume growth and improved margins for the year to December 2023, and with free cash flow up by €1.9 billion to €7.1 billion last year, Unilever felt confident enough to announce a fresh €1.5 billion share buyback.

That said, we were disappointed by fourth quarter underlying sales growth of 4.7%, which came in a smidgeon below consensus and turning this super-tanker of a business round will take time; Schumacher conceded Unilever’s competitiveness remains ‘disappointing’ and performance ‘needs to improve’.

WHAT SHOULD INVESTORS DO NOW?

Stick with Unilever. The much-needed return to volume growth should drive improved sentiment towards the stock and Schumacher is implementing his plan at pace, as demonstrated by a step-up in investment behind Unilever’s 30 ‘Power Brands’.

In the wake of the results, Berenberg observed potential earnings upgrades as 2024 unfolds should not be ruled out. The broker sees potential for Unilever to improve organic sales growth ‘and narrow the gross margin gap to peers through disposal of the non-core brands. Although management did not commit to quickly divest or sell brands outside the top 30, we believe this remains an option’.

Consumers trading down to cheaper private label brands will remain a headwind for Unilever until interest rates start to fall and consumers have more money in their pockets, but Shares remains excited by the potential in its diversified brand portfolio and the long-run growth opportunity in developing markets.

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