3 Spanking Reasons Why Unilever plc Is Set To Shoot Higher

Royston Wild looks at the key factors ready to lift Unilever plc (LON: ULVR).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

unilever

Today I am looking at why I believe Unilever (LSE: ULVR) (NYSE: UL.US) is ready to surge northwards.

Emerging markets strike back

Fears of economic cooling in developing regions has hampered investor sentiment in recent weeks. However, Unilever’s full-year results release recently suggested that such fears may be vastly overblown —  sales jumped an impressive 8.7% in 2013, the company announced, with demand actually improving strongly in recent months. Growth of 8.4% during September-December was up markedly from 5.7% in the previous three-month period.

Growth here remains well above that in the developed world and will continue to do so,” chief executive Paul Polman commented, adding that the firm will “therefore [be] accelerating our investments in emerging markets” to fulfil its growth strategy.

Four-fifths of the world’s population will live outside the US and Europe by the turn of the decade, Polman suggested, where the effect of rising populations and galloping personal affluence levels look set to drive demand for consumer goods skywards.

Margin improvements bolstering bottom line

But even if Unilever suffers the consequences of wider economic pressure on consumers’ spending power, investors should take heart in the firm’s ability to keep margins running at a rate of knots and consequently keep earnings ticking higher.

Indeed, the firm announced that the effect of “strong margin accretive innovations and active cost management” pushed core operating margins 40 basis points last year to 14.1%. Unilever can rely heavily on the formidable pricing power of its star brands — from Cif cleaning products through to its VO5 hair range — to keep margins moving in the right direction.

Steady withdrawal from stale Food products

Although Unilever posted sales growth across all of its divisions last year, turnover at the company’s Food section continues to drag on overall group performance. Underlying sales here advanced just 0.3% in 2013 versus group sales growth of 4.3%, with divisional volumes actually dipping 0.6% during the period.

The business has had to rely heavily on widescale marketing and heavy promotions in order to retain even meagre sales expansion, so signs that Unilever is stepping up the demolition of its Food arm should boost the balance sheet and strip out underperforming assets.

Indeed, the company followed up the sale of its Wish-Bone and Western dressing brands and Skippy peanut butter label in recent months with the sale of its Royal Pasta range to RFM Corporation in January. I expect more sell-offs to transpire in the near future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in Unilever. The Motley Fool owns shares in Unilever.

More on Investing Articles

Investing Articles

What kind of return could I expect by investing £100 monthly in a Stocks and Shares ISA?

Using a Stocks and Shares ISA to avoid capital gains tax could grow a £100 monthly investment into a second…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Can strong operational momentum keep the Informa share price rising?

FTSE 100 company Informa has been performing well, but this may be just the beginning of a multi-year trend for…

Read more »

Market Movers

What’s going on with the Britvic share price?

Jon Smith flags up why Britvic's share price is surging on Friday, but believes that the company is in a…

Read more »

Cheerful young businesspeople with laptop working in office
Dividend Shares

2 super-cheap passive income shares I’m eyeing up right now

Jon Smith discusses two of his favourite passive income shares in the banking and property sectors, both featuring yields above…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Up 37.5% in just 12 months, I think this is one of the FTSE 100’s best investments

Our author says this FTSE 100 company is likely to keep on capitalising on the AI and data boom. But…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This UK share just spiked 15% on bid news. Can we bag a quick profit?

UK share prices are having a good 2024, so far, and this one's already up 39%. Two takeover bids in…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

I’m ‘blowing a raspberry’ at Raspberry Pi shares. Here’s why

Some early investors have made great profits from Raspberry Pi shares. But our writer's questioning whether the 'easy money' has…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Dividend Shares

Here are brokers’ new price targets for Legal & General and National Grid shares

City analysts are generally very positive on National Grid shares. But they're not quite as bullish on the Legal &…

Read more »