It was not a triumphant sign-off from Alan Jope, the now former Unilever boss. Look past the sales and margin headlines, both better than the market had been expecting, and the consumer goods group is winning less market share. True, underlying sales growth of 7.9 per cent in the second quarter beat the 6.4 per cent forecast by analysts, enough for the new boss Hein Schumacher to lift guidance to an increase this year of above 5 per cent. That’s beyond its usual plodding range of 3 to 5 per cent, within which it has historically lingered towards the bottom end.
Again, bumping up prices, which rose an average 8.2 per cent over the quarter, offset an albeit less severe than expected 0.3 per cent fall in sales volumes. It is a fine balancing act. The slice of Unilever’s vast array of brands winning share fell again to 41 per cent, a sharp drop-off from the 48 per cent in the first three months of the year and below a target of at least 50 per cent. It has cut back product ranges. But it raises the question whether better sales growth in the second quarter is down to its marketing chops, or demand generally holding up more firmly.
The drop-off in volumes was worst in Europe, a market where non-branded goods account for 20 per cent of sales versus 9 per cent in the US and 8 per cent in the rest of the world. Consumers here are being squeezed more tightly by cost inflation. If customers trading down is an issue, Unilever also reckons it needs to play harder at the top end of the US premium beauty market, specifically skin cleansing and deodorants, markets where about half the growth comes via products costing between $140 and $200. Juicing more cash out of consumers can’t mask underwhelming growth for too much longer. Price inflation should continue to moderate as the year goes on, the FTSE 100 group reckons. Once it does recede, its ability to squeeze more sales out of its brands will undergo a cleaner test.
Schumacher, in charge for three weeks, has inherited a firm needing to prove that it can sustainably push the top line forward at a greater pace. It is a challenge made more acute by just 14 brands, which include the soap maker Dove and the stock maker Knorr, accounting for 55 per cent of sales. The biggest marker of his success will be whether he can eat away at the gap between Unilever’s market value and those of its consumer goods rivals. A forward earnings ratio of just under 18 times prices Unilever’s shares at a discount to the Swiss food and drink specialist Nestlé, at 21, and even further behind the US consumer juggernaut Procter & Gamble at a multiple of 25.
M&A is an obvious area to consider in setting the group on the trail to better sales growth. Jope did some tinkering, disposing of the tea and spreads businesses. Other food businesses, namely the ice cream division housing Magnum and Ben & Jerry’s, has been fingered by some, including the big shareholder Royal London, as another potential candidate for a sale or spinout. That business suffered the worst decline in volumes during the second quarter, down just over 5 per cent.
How Schumacher deals with the eternal sales-margin struggle is another area of contention. An ill-planned target by Jope to achieve a 20 per cent operating margin was dropped in 2020, partly as an acknowledgment of the additional expenses incurred to weather the pandemic but also to signal to the market that sales growth was the priority. The new chief has said he wants to prioritise innovation and investment behind its brands, which ticked up in the first half, but not enough to reverse a steady fall in brand and marketing spend as a proportion of revenue. Could he go further? If so, investors might need to prepare for a more delayed recovery in margins as a trade-off.
ADVICE Hold
WHY More investment in brands or potential M&A could both spur higher growth
Bridgepoint
Another opportunistic float from the class of 2021 to burn investors, the sell-off in the buyout specialist Bridgepoint Group has been extended, this time on the back of disappointing half-year figures that bear the marks of a sharp slowdown in activity across the private equity market.
Hitting the €7 billion fundraising target for one of its vehicles is proving harder to achieve than anticipated, a June time limit pushed out to next year. That partly explains why management fees in the first six months fell short of market expectations, even if they were almost a quarter higher year over year. Fewer asset sales and weaker exit multiples across the market, which led to a markdown in fund valuations, meant that investment income more than halved. Strip out that it had to stump up less deferred payment for an acquisition made in 2020, and pre-tax profits edged lower to £50 million, also behind market expectations of £56 million.
Despite that, guidance has been retained for this year. Analysts have forecast underlying pre-tax profit of £137.5 million, from £120 million, according to Factset-compiled consensus, lower than the £154 million that had been pencilled in at the start of this year. The rapid rise in interest rates has cast doubt on the valuation of private assets, as well as increasing the cost of capital.
Reticence within the market is understandable. Bridgepoint insists it has a pipeline of exits ready to come through during the second half of this year. But those aren’t deals done.
Investors that bought the shares at 350p apiece at IPO will be sitting on paper losses of about 44 per cent — admittedly not as bad as its fellow laggard, Petershill Partners.
Not surprisingly, earnings expectations have moved inversely to rising interest rates. A forward price-to-earnings ratio of just under 13 is almost a third of that shortly after the group joined the public market. The brokerage Numis put its forecasts under review, pointing towards the central dilemma for investors digesting the slowdown in fundraising — is this just a delay, or “a more permanent reflection on the company’s fundraising capabilities”? It would be prudent to err towards the latter.
ADVICE Avoid
WHY Full-year figures are set to disappoint
