- The share buybacks will start this month and be completed in one or more tranches by the end of the year.
- The news comes as Unilever’s underlying sales rose by 6 per cent in the first quarter, beating analysts’ expectations.
Following “a good start to the year”, Unilever (ULVR) has announced plans to repurchase up to €3bn (£2.6bn)-worth of shares in 2021. The consumer goods giant will start buying back shares this month, and will complete the programme in one or more tranches by the end of the year.
This is Unilever’s first buyback programme since 2018, and chief financial officer Graeme Pitkethly says the decision reflects “the strength of our balance sheet, our leverage levels and the confidence that we have in our outlook and our cash flows going forward”. It also comes after a strong first-quarter performance that beat market expectations.
The three months to 31 March saw total sales dip by 1 per cent year on year, to €12.3bn, amid an 8 per cent knock from currency fluctuations. But on an underlying basis, sales rose by 6 per cent, coming in ahead of company-compiled analyst consensus of 4 per cent growth.
Demand for deodorant and hair styling products remains subdued as consumers stay at home, but Unilever has benefited from people continuing to stock up on surface cleaners and food. The ‘foods and refreshment’ business – which encompasses brands such as Magnum ice cream and Marmite – saw underlying sales climb by a tenth.
Looking ahead, the group remains cautious about volatile trading conditions arising from the pandemic. Yet even as Covid-19 cases surge in India, Pitkethly still anticipates “good growth” from the country in the second quarter.
Overall, Unilever is confident of meeting its full year target of 3 to 5 per cent underlying sales growth, and says that the first half will be towards the top end of this range. Its full year underlying operating profit margin is expected to rise “slightly” from the 18.5 per cent seen last year, although first half profitability will be weighed down by higher raw material, supply chain and freight costs, and increased spending on marketing.
A store cupboard and portfolio staple
While the group’s 3 to 5 per cent multi-year growth target is not earth shattering, Unilever does offer investors reliable, defensive growth, as well as income. Strong cash flows have not only enabled it to launch a buyback programme, but also lift its first-quarter dividend by 4 per cent to 42.68¢ a share.
“Unilever will never be the fastest-growing business in a portfolio, but it is one of the most dependable,” says Steve Clayton, manager of the HL Select UK Growth Shares Fund (GB00BD5M6033), which has Unilever as a top 10 holding. “Over time, the value of those dividend payments and steady growth in the scale of the business add up.”
The group’s diverse array of products has helped it weather the pandemic, and beyond this crisis it is hoping that the “strategic refresh” unveiled in February will accelerate momentum. This will see it focus on higher-growth categories such as plant-based foods and ‘functional nutrition’, and hive off slower moving units such as its tea business. It follows the unification of the group’s Dutch and UK arms into a single London-listed entity last year, which it says will make it easier to add and demerge businesses from its portfolio.
The shares have struggled in recent months, but the positive quarterly numbers and return of buybacks prompted the market to bid up the shares by 3 per cent. Currently trading at 19 times consensus 2021 earnings, this doesn’t seem overly expensive in light of the long-term growth and income opportunity. Buy at 4,246p.
Last IC View: Buy, 4,103p, 4 Feb 2021
