Home > Blog > Trader talk > Unilever NV – A good stock to hold

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 82% compares to the Euro Stoxx 50 which is up 60%. We remain overweight on Unilever with a price target of €42.8/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 2017, below market expectations. 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 can be seen in their constant improvement in EBIT margins
  • A defensive stock in which investors tend to shift into in times of uncertainty and increased volatility
  • An attractive dividend yield of 3.33%
  • All four categories (Personal Care, Food, Home Care and Refreshments) are growing ahead of the market
  • Benefitting from price growth in emerging markets
  • Although currently seeing weakness in Europe, the positive trend we are seeing in economic data from Europe should result in an improvement in sales for the company going forward
  • Attractive valuations gives a 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 €42.80 on a forward P/E multiple of 22x. If the current events in the market had a positive outcome and global growth continues heading in the right direction, we see further upside to our price target. An increase in P/E multiple to 23x would result in a price target of €44.70 which is in our view also realistic.

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.