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Unilever sales slow as it reviews share structure

The consumer goods company is in the process of buying back all Dutch preference shares, fuelling speculation that it could opt to drop its dual listing
October 23, 2017

Unilever (ULVR) reaffirmed its 2020 performance targets, despite growth slowing during the third quarter. Management revealed a 2.6 per cent increase in underlying sales during the three months to the end of September, resulting in 2.8 per cent growth so far this year. However, this was down from 3 per cent at the half-year stage and behind consensus expectations of 3.9 per cent for the quarter. 

IC TIP: Hold at 4151p

Emerging markets provided some respite, with underlying sales up 6.3 per cent. That was driven by 1.8 per cent volume growth, a marked improvement on the 0.2 per cent decline during the previous six months. However, management reiterated its expectations of a 100 basis point improvement in the underlying operating margin and 3 per cent sales growth for the full year. 

Management also said that the review into the dual-headed legal structure was progressing well, adding that they were taking steps to simplify the capital structure and improve corporate governance in addition to the offer for all preference shares in the Netherlands.

A €450m (£401m) buyback of Dutch preference shares is already under way, which will result in a single share class in the Netherlands. This has fuelled speculation that a single listing could be the end goal. So far this year the consumer goods giant has bought back €3.9bn (£3.5bn)-worth of shares overall, and is on track to meet the target of purchasing €5bn of shares by the end of the year. 

A single listing could improve transparency for shareholders and make it easier for the company to make acquisitions, or even split off part of the business. The spreads business was identified as the first to go, with the South African division sold in September. Whitman Howard analyst Chris Wickham argued that Unilever should consider selling the entire foods business, ideally to an American group such as previous bidder Kraft Heinz. This would allow Unilever to focus specifically on home and personal care items.

Unilever will have a choice between keeping its UK or Dutch listing, or, albeit less likely, choosing a new market altogether. Mr Wickman said that keeping the London listing would be the most sensible option because of the most fast-moving consumer goods companies are based in Britain compared with other markets in Europe. Unilever has several peers in the UK market, while its only Dutch peer is Heineken. Listing alongside similar companies often improves broker coverage of the company and makes valuation less tricky.