Unilever
Quarterly dividend E0.285 a share
Unilever is the first big corporate to report figures for 2014 and they do not augur well for other global consumer goods companies, such as Diageo and Reckitt Benckiser.
I have suggested that such businesses should do well out of the low oil price, while this year’s numbers will compare favourably with last year’s, which were affected by the strength of sterling, on a reported basis at least. Low oil prices, in markets such as Japan, Australia or the United States whose economies are not dependent on the stuff, should put money into the pockets of consumers to spend on drinks, personal health products and the like.
Meanwhile, a large chunk of these producers’ costs comes from energy and plastics whose price is tied to the oil price, and this should improve margins.
It doesn’t seem to be happening yet. Fourth-quarter underlying sales growth was 2.1 per cent, well short of market expectations of about 2.6 per cent. Cost savings and other efficiencies meant some improvement in margins, but the outlook statement was decidedly downbeat, with no recovery in market conditions expected this year and the eventual outcome much the same as in 2014.
Sales growth in the fourth quarter in emerging markets slowed to 4.1 per cent, from 5.6 per cent in the third quarter, while in developed ones it went into reverse, down 0.8 per cent over the year. China is a special case, with two successive quarters of 20 per cent sales declines as its customers destocked, but other markets, such as Brazil, also were depressed.
Foods continued to be weak — Unilever has been divesting itself of brands such as Ragu and Bertolli pasta sauces in the United States, while the hiving off of the underperforming spreads side may presage a sale in due course.
The shares had been approaching a record high, so there was only one direction they could go and they fell 16p to £27.13. The concern among analysts is that, in a deflationary environment such as we are now entering, there is not a lot that the company can do to boost growth.
The shares still sell on more than 20 times 2014 earnings. Although growth continues, that suggests no immediate upside or any reason to buy.
My advice Avoid
Why Sales in emerging markets are still growing at a reasonable pace, but expectations for 2015 are muted and shares highly rated
NAHL Group
2014 revenues £43.8m expected
Claims management companies have something of a reputation for ambulance-chasing, especially with regard to mis-sold PPI insurance. NAHL operates the National Accident Helpline and is one of the biggest advertisers on daytime TV. It has no involvement in PPI, though, specialising in putting members of the public involved in accidents in touch with its panel of specialist lawyers.
The crackdown that began in April 2013 on less reputable companies, which has led more than half to exit the market, has been to NAHL’s benefit. It floated on AIM in May at £2; the shares rose 19p to 257½p yesterday after a trading update for 2014 showing that revenues had risen by more than 10 per cent and enquiries by more than 15 per cent.
There is every indication that, as the market leader, its share will continue to grow, while there are opportunities to extend the business into other areas of litigation. The shares sell on 11 times earnings.
There are no obvious comparators, but the company pays a high level of dividends from its strong cashflow, offering an expected total payment of 15p, which puts the shares on a yield of almost 6 per cent.
My advice Hold for income
Why Yield is attractive and shares reasonably priced
Stock Spirits
4.4% YTD fall in Polish spirits market
When Stock Spirits floated at the end of 2013, there was much talk of it being a “mini-Diageo”. It didn’t work out that way.
The company makes spirits for the eastern European market, with about 60 per cent of its sales in Poland. The market there has been in gradual decline, with Stock Spirits keen to shift drinkers upmarket to higher-margin flavoured vodkas.
At the start of this year, the authorities in Poland lifted the duty on spirits by 15 per cent. This was well signposted beforehand and so the company’s customers, many of them small local stores, stocked up late last year.
However, it took some months for the severity of the hit on sales to become apparent. The situation was made worse by some aggressive price-cutting by rival producers.
In November the company surprised the market with a profit warning that wiped a quarter off the share price, as the market took longer than expected to return to equilibrium. This came only six weeks after Stock Spirits had taken a party of analysts out to see the Polish operation.
Yesterday the company said that profits for the year would come in at the bottom end of expectations and the shares lost another 16p to 211p, against a flotation price of 235p.
The Polish market is still declining by volume and that decline is accelerating, according to industry figures. The shares sell on about 16 times 2014 earnings. This still looks expensive, given that the stock market is going to take a while to forgive the upset. Best avoided.
My advice Avoid
Why Market will take time to forgive earlier profit warning
And finally . . .
I have highlighted Real Good Food before as one of those companies that the market has never really got a handle on. It owns brands such as Whitworths Sugar and the Renshaw range of baking ingredients and has just expanded the latter with the purchase of Rainbow Dust Colours, which makes cake decorating products. The price, a maximum of £7.5 million, does not look excessive for a business making profits of £1.7 million. Real Good is promising further deals in due course and is not lacking in ambition.
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