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About the Company
Unilever is an Anglo-Dutch multinational consumer goods company co-headquartered in Rotterdam, Netherlands, and London, United Kingdom. Its products include food, beverages, cleaning agents and personal care products.
Unilever owns over 400 brands, but focuses on 14 brands with sales of over 1 billion euros – Namely Axe/Lynx, Dove, Omo, Becel/Flora, Heartbrand ice creams, Hellmann's, Knorr, Lipton, Lux, Magnum, Rama, Rexona, Sunsilk and Surf.
Investment Thesis
We reduced our price target from €46.00 to €41.00 per share mainly due to the Company’s sales being dependent on emerging markets. In 2015, 58% of sales came from emerging markets.
With the current market turmoil and global growth concerns, we took a prudent stance and reduced our forward price multiple in our model from 24x to 22x. This resulted in a change in our stance on Unilever from overweight to neutral.
Our neutral recommendation is mainly based on the following two assumptions. The first is that in the short term we find it hard to see sales pick up at a strong pace given the current environment. The second being margins have been improving mainly due to cost cutting rather than higher prices and we expect more of the same in 2016.
However, despite our short term concerns, we believe that in the medium to long term Unilever will continue to generate attractive returns for shareholders for the following reasons:
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