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Unilever supported by cleanliness panic

The decline in H1 revenues was less severe than analysts had expected
Unilever supported by cleanliness panic

The scale and diversification of Unilever’s (ULVR) business model came to the fore during the first half. Indeed, trends towards at-home eating, drinking, and hand-washing helped to cushion the blow of lockdown restrictions – meaning that underlying sales edged down by just 0.3 per cent in the second quarter. Broker Jefferies had anticipated a 3.9 per cent decline, while consensus expectations were for an even worse 4.3 per cent contraction, which explains why shares in the consumer goods giant climbed by 7 per cent at the market open.

IC TIP: Hold at 4,675p

Chief executive Alan Jope noted that the six months to June saw “unprecedented fluctuations in demand”. For one thing, restrictions on movement were introduced at different times around the world, and had different impacts across Unilever’s geographies. Group underlying revenues were broadly static, reflecting a 2.4 per cent improvement in developed markets and a 1.9 per cent decline in emerging markets.

Consumer shopping habits also changed dramatically. Unilever’s food service revenues fell by almost 40 per cent, while out-of-home ice cream sales tumbled by more than a quarter. But at the same time, a pandemic-induced focus on cleanliness meant that hand- and home-hygiene products each grew in the double-digits. And the crisis did more than just re-jig people’s grocery baskets. It also changed the way they purchased – driving many customers online. The group’s e-commerce channel enjoyed revenue growth of almost a half.

In turn, Unilever’s underlying operating margin edged up by 0.5 percentage points to 19.8 per cent – better than analysts’ forecasts of a 60-basis point fall. For the full year, UBS anticipates adjusted pre-tax profits of €8.7bn (£7.9bn), with EPS of 232c.

These results followed on from Unilever’s revelation in June that it would unify its Anglo-Dutch legal structure – creating a single parent company. The group believes that such a move will enhance its ability to make acquisitions and disposals. While this plan still requires shareholder approval, Unilever has already taken steps to progress the strategic review of its tea business. It now intends to retain its operations in India and Indonesia, while offloading all other tea brands – which collectively made €2bn in sales last year.

UNILEVER (ULVR)   
ORD PRICE:4,675pMARKET VALUE:£ 123bn
TOUCH:4,673-4,675p12-MONTH HIGH:5,324pLOW: 3,726p
DIVIDEND YIELD:3.0%PE RATIO:24
NET ASSET VALUE:595¢*NET DEBT:125% †
Half-year to 30 JunTurnover (€bn)Pre-tax profit (€bn)Earnings per share (¢)Dividend per share (p)**
201926.14.351.1570.92
202025.74.531.2573.12
% change-2+4+9+3
Ex-div:06 Aug   
Payment:09 Sep   
£1 = €1.10. NB: Market-cap reflects combined value of Unilever Plc and Unilever NV. *Includes intangible assets of €35.7bn or 1,358¢ a share. **Quarterly dividend amounts (determined in euros and converted into equivalent sterling on 21 Jul). † Includes lease liabilities of €1.85bn.