The first piece of advice for anyone struggling to afford their weekly shop is always to trade down. Dump the big brands for the cheaper, supermarket-labelled rivals that don’t have to absorb the cost of a multimillion-pound advertising campaign.
It was inevitable, then, that Britons engulfed in a cost of living crisis would think twice before piling their trolleys full of Unilever’s goods.
Sales of the consumer goods giant’s discretionary products, such as Ben & Jerry’s ice cream, fell victim to what Unilever calls “downtrading” (and the rest of us call trading down). The company has also passed on the impact of inflation to consumers, hurting sales at brands such as Persil and Cif, too. Its volumes across Europe fell by almost 11 per cent in the third quarter of 2023 — and investors have been put off.
At £37, shares in the FTSE 100 giant are nearly 10 per cent lower than the £40.60 touched a year ago, as well as being down from £44 last May and well off a peak above £50 in 2018. The stock price is even below the level of Kraft Heinz’s famous £40 bid back in 2017.
This sniffy sentiment, however, looks short-termist. The shares are currently trading at 16 times forward earnings — highly competitive when compared to the historical average of 24 times. It’s a cheap entry point.
Admittedly, Unilever has had a patchy few years at corporate HQ. There was intense criticism over its failed £50 billion bid for GSK’s consumer health business (now Haleon) in 2022 — not least from veteran fund manager Terry Smith, who called the attempted acquisition a “near-death experience”.
But new chief executive, Hein Schumacher, a one-time Heinz executive — where he worked with Unilever’s current activist investor, Nelson Peltz — who took the helm last July, looks a safe pair of hands. The low-key Dutchman is already ridding the company of chaff, selling the Dollar Shave Club, which Unilever bought for $1 billion in 2016, and announcing an “action plan” focused on the firm’s most lucrative 30 brands. Unilever conceded at its results in October that its “performance in recent years has not matched our potential”, with “growth, productivity and returns all under-deliver[ing]”.
The board now has fresh confidence: Schumacher and other executives connected to management have bought more than £1 million worth of shares in recent months.
The deeply reliable dividend, off the back of strong cashflow, is appealing, as is Unilever’s diversified portfolio across the developing as well as the western world.
Finally, there is the Peltz factor. If the man some know best as Brooklyn Beckham’s father-in-law is using Schumacher as a puppet, as some claim, investors are likely to prosper. After the activist investor bought into Unilever rival Procter & Gamble, joining its board in March 2018, P&G’s stock had risen by about 80 per cent by the time he left the board in 2021.
The maker of Marmite might inspire a love-it-or-hate-it sentiment in the City, but Unilever looks ripe for an investment comeback. Buy.
