As a Unilever (LSE: ULVR) shareholder, I have been incredibly disappointed with its share price over the past couple of weeks.
After it was revealed that the company had tried to make an offer for GlaxoSmithKline‘s consumer pharmaceutical business towards the end of last year, shares in the consumer goods giant plunged more than 11% at the beginning of this week.
Even though the stock has recovered modestly from the low point, the shares are still off 17% over the past year, excluding dividends.
Following this performance, as an investor, I have been trying to determine what is next for the business and if the stock will continue to remain under pressure in the near term.
What’s next for the share price?
It seems to me there are a couple of reasons why the market has been moving away from the company. Leaving aside the recent GSK deal fiasco for a moment, Unilever has been struggling to increase sales in an increasingly competitive environment.
The company’s competitive advantages, such as its global supply chain and distribution infrastructure, have helped it maintain some sales growth. Still, this growth has lagged peers in the consumer goods sector.
Indeed, shares in one of the corporation’s largest competitors, Nestlé, have returned 21% over the past 12 months, excluding dividends. This means the stock has outperformed the ULVR share price by 37%.
The company’s management is facing increasing pressure to reverse this trend. At the beginning of the week, the organisation presented the outline of its new plan to help change course. Management wants to refocus the business to higher-margin, higher-growth sectors like beauty and healthcare.
This is giving rise to speculation that the firm may start to divest more of its food and beverage brands. It has already agreed to sell its tea business, including household name PG Tips, to CVC Capital for €4.5bn.
New strategy
The company plans to provide further information on the new strategy over the next couple of months. It intends to release its results for 2021 at the beginning of February, and the City will be expecting additional information on the new strategy then.
In the meantime, there are plenty of risks that could hold the business (and the ULVR share price) back. Inflation is affecting consumer confidence. This could cause consumers to move away from higher-value brands favouring cheaper alternatives.
This could significantly impact the company’s growth and sales volumes. Rising interest rates may also increase the cost of borrowing for the firm, hitting profit margins.
Despite these challenges, I think it would be silly to ignore the business’s competitive strengths. These include its global distribution network and stable of incredibly valuable, well-known brands.
As such, while I have been disappointed with the company’s performance recently, I am continuing to hold the stock. I could potentially buy more if the corporation unveils a strategy that I agree with. I think the ULVR share price will continue to languish until the strategy is published.
