The Unilever (LSE: ULVR) share price was firmly on the front foot this morning after the consumer goods giant revealed an encouraging update on trading over the first quarter of 2021. Let’s check those numbers.
“A good start to the year”
Perhaps the most important point from today’s statement was the 5.7% underlying sales growth reported by the FTSE 100 member. This is positive as Unilever had previously reported fairly sluggish trading over the pandemic, despite virtually all of us being stuck at home.
On a geographical level, sales in the Emerging markets rose 9.4% over the three months to the end of March. That’s not surprising when you consider that many countries in this region were in lockdown over the same period in 2020.
Sales growth in developed markets was more depressed with growth in North America being held back by Europe. Strong demand for food was offset by lower sales of personal goods products. Even so, the firm’s e-commerce operations reported sales growth of 66%.
Commenting on today’s numbers, CEO Alan Jope said that the company had made “a good start to the year.” He went on to say that the “operational separation” of the firm’s tea business was progressing, although the actual form this takes (IPO, demerger or sale) is still to be decided. Unilever has also creating a new unit (Elida Beauty). This houses its smaller personal care brands, such as Q-Tips and Impulse, that could also be put on the block.
Following hot on the heels of FTSE 100 oiler BP, Unilever revealed that it would kick off a €3bn share buyback programme in May. This will be completed by the end of 2021.
I’m bullish on the Unilever share price
The Unilever share price is now barely 3% higher from where it was a year ago. For perspective, the FTSE 100 index has climbed 14% over the same time period.
Despite this lacklustre performance, I see the Marmite-owner as a quality, defensive pick. Like UK fund managers Terry Smith and Nick Train, I’m drawn to its consistently solid margins and returns on capital. These are what I look for as a long-term investor. They help to explain why the Unilever share price is up 38% over the last five years. The FTSE 100 is up 12%.
The outlook is also positive. The firm is targeting underlying sales growth of 3-5% in 2021. This number is likely to be at the top end over H1.
This isn’t to say that Unilever has turned the corner just yet. The company reflected that its operating environment “remains volatile” due to COVID-19 and the impact of sporadic lockdowns across the world on shopper behaviour.
The huge rise in coronavirus infection in India over recent weeks means investors should not assume that today’s positive momentum in the Unilever share price will necessarily hold in the near term. To be clear, no investment is devoid of risk. Even so, I think this is already priced in for Unilever.
Trading at 19 times forecast earnings before markets opened, I think this company represents great value right now. The share price won’t explode in the same way that some small-cap stocks have recently. However, it offers that strong foundation many investors probably look for.
So, while I’d maintain a sufficiently diversified portfolio as a precaution, I’d have no issue with buying the stock today.