Tag Archives: Unilever

Stocks in Focus: Reckitt Benckiser

This week I am revisiting Reckitt Benckiser, the global consumer goods company. In November of last year I mentioned how the company had a good start to 2016, supported by a successful cost savings programme and sales figures beating expectations. This year however, things have turned a little sour for the company with the news of a cyberattack taking its toll on operations and revenue.

The global cyberattack on multinational companies last month disrupted Reckitt’s ability to manufacture and distribute products to customers in multiple markets. Some of its factories are currently still not functioning normally but plans are in place to return them to full operation. Management stated that while it expects some of the sales lost in the past 3 months to be recouped in the current quarter, continuing supply chain disruptions mean that they could lose customers. As a result of these problems, Reckitt now forecasts a 2% revenue growth instead of the 3% originally expected.

Acquisition speculation is also in the news for Reckitt Benckiser as Unilever and Hormel Foods are believed to be bidding to acquire its £2.2 billion food division known for brands such as French’s Mustard and Worcestershire sauce. All three companies involved have not commented about the speculation, but we will surely find out more in the coming weeks.

Although Reckitt Benckiser is facing a tough period at a time when its shares are valued relatively highly, the company has historically shown resilience in difficult periods and consistent growth over the long run. Furthermore, its non-cyclical nature continues to be attractive to the long term investor.



Stocks in Focus: Unilever

This week I am looking at Unilever again following management’s strategic review of the business, which was prompted by the failed takeover approach by Kraft Heinz in February. Most notably, the decision has been made to reduce the number of divisions from four to three by combining the Food and Refreshment divisions – with the rational that this will enable faster margin progression. As part of the restructuring, plans have begun to dispose of the  ‘spreads’ category, where sales have been in decline for a number of years, causing a drag on profits.

Management have already engaged in a number of cost saving initiatives over the last two years and intend to increase their efforts with the aim of improving underlying operating margins to 20% by 2020. Part of these cost savings are expected to come from cutting the marketing budget, and in particular reducing the amount of TV adverts aired. This reflects the difficulties many consumer companies face with how to successfully market to customers in a predominantly online era. In addition to reinvesting back in to the business, management has announced a €5bn share buy-back for the remainder of this year and a 12% increase in the dividend.

Initially, shareholders were concerned that the business would change drastically after the review and take on too much debt in the hope of “putting off” further takeover interest. It is encouraging to see that this has not been the case, and that it has been recognised that the existing business model continues to be successful. The news has so far been taken well by investors and the shares continue to trade at all time highs.


Stocks in Focus: Unilever

This week I am looking at Unilever, following the recent release of its half-yearly results. In addition to an encouraging set of figures, the consumer goods company also announced the $1 billion purchase of Dollar Shave Club, a California-based internet subscription business that delivers cost-effective razors and other personal grooming products. Management have previously identified men’s grooming as a growing market trend and as such it is not surprising that they are increasing their exposure to this category, although their choice of acquisition target is somewhat unexpected.

At first glance, the price paid for Dollar Shave Club appears expensive. The four-year-old start up is barely profitable and revenues are forecast at a mere $200m for this year – so what do Unilever gain from such a high price tag?

Well, what this business does offer is a completely different business model to their competitors, with a modernised approach. The subscription-based service enables direct-to-customer e-commerce capabilities, as opposed to the historical approach of selling products in stores via a third party. This new offering to consumers has already proven a success and despite the short time scale, Dollar Shave Club already holds 5% of the men’s razor blade market and is growing at an extraordinary rate, with sales growth of 30% predicted for this year. In contrast, the personal care group Edgewell, which owns the well-known brand Wilkinson Sword razors expects a modest annual growth of 2-3% over the long term.

As market conditions continue to prove difficult and consumer demand remains fragile we are likely to see an increase in unusual acquisition activity across the sector. Rather than looking at long-standing mature businesses, companies such as Unilever are progressively looking at smaller, younger companies and the passionate entrepreneurs that come with them in order to revive demand.


Points of View: Brexit Aftermath

It is now over a week since the historic vote for Britain to leave the EU and stock prices continue to be relatively volatile. It is interesting to see how investors have reacted to the result – the market is up, surprising many after the initial reactions to the result, although we have seen a pronounced polarisation of share price movements depending on the size and nature of businesses.

The FTSE 100 has broken through the 6,500 level for the first time since August last year and, as at the time of writing, has risen just under 3% since the close of business on 23rd June (the day of the vote). In comparison, the FTSE 250 has fallen approximately 7% over this same period. The outperformance of many of the larger companies that make up the FTSE 100 has largely been driven by their international nature. Unilever, for example, derives over 90% of its profits overseas but has a large cost base in the UK – it is therefore a strong relative winner from the post-vote sterling weakness.

Share prices of UK-focussed businesses, on the other hand, have been very weak and are to some extent pricing in the probability of a recession. Clearly, companies with earnings predominantly or entirely derived in the UK are more exposed to any slowing of the domestic economy and will also suffer from any increase in the cost of imported goods that arises from sterling weakness.

Volatility is likely to continue for some time until the implications of the vote become clearer. For long-term investors, volatility is a positive insofar as it can throw up interesting opportunities to buy good quality businesses at attractive prices.  The challenge for investors looking at UK-focussed businesses is in determining whether current prices are attractive compared to the likelihood or otherwise of a Brexit-induced UK recession.


Stocks in Focus: Unilever

This week I am looking at Unilever, which is one of the world’s leading suppliers of consumer goods within the Food and Home & Personal Care markets. Its portfolio includes well-known brands such as Comfort, Surf, Dove, TRESemme, Flora and Magnum. Most notably, following on from four bolt-on acquisitions this year, Unilever is now the world’s second biggest Personal Care product provider after L’Oreal.

One of the main attractions of Unilever from an investment perspective is that its products are always in demand, being purchased by millions of customers every day, regardless of the economic weather.  In addition to this, one of the core drivers of its growth over recent years has been its exposure to an ever growing band of Emerging Market consumers.  However, with Emerging Markets now accountable for more than 50% of sales, the recent slow down of growth in these areas have led to concerns that the company may not be able to continue its hitherto reliable growth. In light of these concerns, Unilever’s recently released third quarter results, which revealed its highest rate of growth in three years, were well received.  Indeed, on the day of the results last Thursday, the shares rose an encouraging 4%.

With companies struggling to drive growth amid economic uncertainty, Unilever has again demonstrated the strength of its business model.  However, a good company is not always a good investment and it remains vital that investors targeting attractive long term returns do not overpay for a company’s prospects.