Paul Polman, the chief executive of Unilever, has a bit of a reputation as a merchant of doom. He shocked the City in September 2013 by warning of a downturn in emerging markets, from where Unilever gets more than half its business. That warning was followed, in varying degrees, by other global consumer goods groups.
Mr Polman is warning again that market conditions will be tougher in 2016. The declining oil price has meant that the economies that produce the stuff will suffer. Also, the fall in the currencies of regions such as Latin America and Indonesia against the dollar has meant the price of imported goods has risen, taking money out of the pockets of local consumers.
Unilever is responding by cutting costs as hard as it can and by forcing through price rises where possible, particularly in refreshments, which for it include ice creams such as Magnum and Ben & Jerry’s. It has been adding premium, high-margin products, such as Talenti and Grom, not exactly household names but apparently ice creams from, respectively, the United States and Italy.
The figures for 2015 suggest that the strategy is working, allowing Unilever to outperform its markets pretty much across the group. Underlying sales were 4.1 per cent ahead over the year, above market expectations and coming about half and half from volume growth and higher prices. In emerging markets, underlying sales growth was 7.1 per cent.
Operating profit was up by 12 per cent to €7.9 billion, if you strip out a €570 million one-off gain in 2014 from the sale of the pasta sauces business in the US. Unilever typically spends €1 billion or more on bolt-on acquisitions. It actually spent more than €2 billion last year, on those two ice cream brands and on products such as Camay soap.
Some analysts were worried about debt, which rose by 16 per cent to €11.5 billion, reflecting that high acquisition rate and the fact that about 60 per cent is dollar-denominated, so it rose with the US currency. That debt level does not look excessive, however.
The shares rose 91p to £29.34. They sell on about 19 times’ earnings and yield about 3.1 per cent. Unilever has shown its ability to navigate choppy markets and they look worth holding in the long term.
€11.5bn year end debt
7.1% sales growth in emerging markets
My advice Buy long term
Why Despite facing a further year of tough markets, Unilever has shown an ability to outperform and push through price rises
Revolution Bars Group has fulfilled all the promises it made at the time of its float last March, but the shares remain obstinately below their initial £2 price. The company had expected to open four new sites in the current financial year to the end of June; now a fifth has been identified, which would bring the estate to 62 in all.
Like-for-like sales in the first half were up 2.7 per cent, while industry statistics published this week suggest a rise of 1.8 per cent across the industry, so the company outperformed the market. This was despite a slightly unhelpful timing for Christmas, the Monday extra holiday falling just outside the trading period while the whole holiday was within it last time.
The company is building up its Revolución de Cuba bars, which are targeted at the older and more prosperous female drinker. It raised fresh funds at the time of the float, so there is no bar on further expansion. It is not easy to compare like with like, as the company is not a straight pubco. The shares, though, off 3p at 178½p, sell on 13 times’ this year’s earnings.
That rating looks about right and does not suggest a compelling reason to buy now.
2.7% rise in like-for-like sales
My advice Avoid for now
Why Company has plans for growth, but this is in the price
British Land seems to have run into a little controversy with its Norton Folgate scheme in Spitalfields, where the company wants to demolish some Victorian warehouses. The usual heritage groups are opposing this; Boris Johnson has just ruled in the company’s favour, but the matter probably will go to a time-consuming judicial review.
Other than that, all is going in British Land’s favour, so it is odd to note the sharp fall in the share price from a high of 886p late last year. The shares rose 3p to 715p after a favourable third-quarter trading update, but they still sell on a 20 per cent discount to the last published net asset value, below the sector average.
It is tempting to say that the company is running out of office space to let. Its portfolio is effectively full, with the Cheesegrater 94 per cent let and the next big scheme, in Paddington, not available until the start of next year. Third-quarter lettings across the group were going out at 8.5 per cent ahead of the September estimated rental value.
British Land is the UK’s largest listed owner and operator of retail space, half its total portfolio. Footfall here was up 2 per cent over the period, against a fall of more than 4 per cent in retail generally. As one analyst pointed out, the market is beginning to polarise, with the better developments such as the company’s Meadowhall scheme outperforming.
British Land shares generally track the market. Unless you believe that we are heading for another steep fall for the FTSE 100, that discount to net assets appears too wide.
33% loan to value ratio
My advice Buy
Why Discount to net assets has widened considerably
And finally ...
Oil sector analysts are trying to decide if the price of crude has finally reached the bottom and, if so, who will benefit. A note from RBC Capital Markets alights on Tullow Oil, which it expects to upgrade on reserves with results on February 10. “Good [exploration and production] companies do not survive oil price crashes, they get taken out by Big Oil.” Premier Oil’s recent North Sea deal suggests that others are prepared to invest. I still think it is too early to get back into oil stocks, but the day will come.
