Unilever NV – A core holding on our equity list

About the Company

Seven out of every ten households around the world contain at least one Unilever product, and our range of world-leading, household-name brands includes Lipton, Knorr, Dove, Axe, Hellmann’s and Omo. Trusted local brands designed to meet the specific needs of consumers in their home market include Blue Band, Pureit and Suave.

About the Shares

Over a 5-year period, shares in Unilever are up 100% compared to the Euro Stoxx 50 Index which is up 70%. We remain overweight on Unilever with a price target of €56/share.

Reasons for recommendation:

• We expect to see a pickup in Emerging Market demand due to an improvement in commodity prices and a strengthening of EM currencies

• Management focusing on increasing sales through e-commerce

• We stick to conservative growth figures for 2018 and beyond. Since Emerging Market growth is much harder to forecast, we prefer to start seeing macroeconomic improvements before factoring them into our model

• Good product mix enabling the Group to benefit from economies of scale and this should at least maintain the current EBIT margins in the years ahead

• A defensive stock in which investors tend to shift into in times of uncertainty and increased volatility

• An attractive dividend yield of 3%

• All four categories (Personal Care, Food, Home Care and Refreshments) are expected to grow in the years ahead

• Benefitting from price growth in emerging markets

• Growth from emerging markets is expected to continue despite an increase in competition

• Attractive valuations gives Unilever the opportunity to acquire competitors at more attractive prices

Concerns

• Increased competition in emerging markets leading to a loss of market share

• A black swan event which would result in heavy declines in commodity prices

• A slowdown in the Food and Refreshments business which at the moment is contributing positively to the financials of the Group

• Weakness in emerging market currencies leading to losses from forex in the financials

• Global growth concerns

Conclusion

We believe that the Group would not find it difficult to reach our forecasts which reflect a price target of €56 on a forward P/E multiple of 24x which is in line with its long term multiple. If global growth continues heading in the right direction (especially in emerging markets), we are confident that our price target will be reached.

Also, the fact that it is a defensive stock which has recovered strongly after negative events and outperformed the market this year, gives us further conviction in the Company.