Shares in consumer goods firm Unilever (LSE: ULVR) reached an all-time high of just over 5300p in September last year. Since then, however, the FTSE 100 constituent has fallen distinctly out of favour with the market.
December was a particularly rough month for investors after the company revealed that underlying sales growth for 2019 would come in slightly below previous guidance as a result of problems in India and China. The Marmite-maker also stated that growth over the first half of 2020 would likely be below 3%.
Having been such a reliable performer for so many years, is this loss of form a sign that its crown is slipping or a chance for prospective buyers to take a stake on temporary weakness? I’m inclined to say the latter.
Growing pains
Granted, today’s full-year results were nothing to shout about. As predicted, underlying sales were lacklustre, increasing just 1.5% in the fourth quarter and 2.9% over 2019 as a whole. That said, both percentages were slightly higher than some analysts were expecting. Homecare — the smallest of the firm’s three divisions — provided the biggest lift, registering growth of 6.1%.
Despite difficult trading in West Africa, South Asia and the Middle East at the tail end of 2019, sales in emerging markets (a key source of growth for Unilever) also climbed 5.3%. Developed markets “remained challenging” however, especially Europe.
At €6bn, net profit was down 38.4% from the previous year due to the sale of its spreads business in 2018. In related news, it was announced today that management would be carrying out a strategic review of its global tea business (which includes brands PG Tips, Lyons and Lipton) suggesting another sale is on the cards.
Commenting on the company’s outlook, CEO Alan Jope — who has now been in post for a year — said that underlying sales growth in 2020 was now likely to be “in the lower half of the multi-year 3-5% range” and “second-half weighted”. He reiterated that growth over the first half of Unilever’s financial year would be “below 3%” before adding that it wasn’t possible to gauge the impact of the coronavirus outbreak on trading at the current time.
Opportunity knocks?
Unilever’s shares were up slightly in early trading, suggesting that market participants were generally satisfied with today’s statement.
Based on analyst projections for 2020, this leaves the shares trading on 19 times expected earnings — slightly below the five-year average of 21. While not offering incredible value, I do think this might be a price worth paying for a company with huge geographical diversification and still generating massive free cash flow (€6.1bn in 2019).
The return on invested capital — a metric of supreme importance to one of the UK’s best-performing fund managers — has also been consistently high over the years. In 2019, this rose to 19.2%. Many companies would love to report such a number to their investors.
Of course, the recent fall in the share price also means a larger dividend for those willing to stick around while the business is reshaped. A mooted 181 euro cents (153p) per share total return in 2020 translates into a decent yield of 3.4%.
To say that there is a ‘perfect’ time to buy stocks is stretching things a bit since no one knows where markets will head over the short term. Notwithstanding this, I’m confident the Unilever share price will recover and regard the recent decline as a buying opportunity.
