The leading UK share I bought in my ISA this week — and why

Our writer added a well-known UK share to his ISA recently. Here he explains why he reckons the company could be a good addition to his holdings.

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So far in 2022, a number of UK shares have been performing strongly. But there has not been consistent progress across the market. This week I added a well-known FTSE 100 share into my S&S ISA because I think recent price weakness offered me an attractive entry point.

FTSE 100 blue chip

The UK share in question is Unilever (LSE: ULVR), the maker of products such as Dove and Surf. It has been a tumultuous week for the company. It was already dealing with comments by well-known fund manager Terry Smith suggesting its ESG focus could hurt financial performance. It then emerged that the company had made an unsuccessful bid for the consumer goods unit of GlaxoSmithKline. That fizzled out. Mr. Smith stuck the boot in, describing the failed offer as a “near death experience”.

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What is going on at Unilever? The GSK bid seems to have been poorly managed. It also feels like the company was trying to buy growth rather than working to improve growth prospects in its own sizeable portfolio of businesses. The GlaxoSmithKline bid has made me further question the quality of Unilever’s current management.

UK share on sale

Despite that, I think the company’s great collection of brands will be able to drive long-term shareholder value. They help give the company premium pricing power, which can support profit margins even in inflationary times.

On top of that, I actually reckon Unilever’s ESG focus could help it. There is a risk it could add on costs without helping sales. But many of the company’s brands target ethically conscious consumers. I see a business case underpinning the company’s green moves.

The Unilever share price has been pummelled. It now sits 16% lower than it did a year ago.

But I do not think the outlook for Unilever is 16% worse than a year ago. I see value in the company. That is why I bought it in my ISA this week.

Growth drivers for the Unilever share price

The failed bid is just one part of the overall mergers and acquisitions picture at Unilever. In November, it agreed to sell its large tea business. The strategy seems to be to refocus its portfolio on higher margin consumer goods businesses. I think that makes sense from a business perspective.

The company’s global footprint means it is well placed to benefit from growing demand in emerging markets. Underlying sales in the first nine months of Unilever’s current financial year grew 4.4%.

In the recent third quarter, volume actually declined by 1.5% but a 4.1% pricing increase meant that total sales grew in value. That is exactly the sort of pricing power I mentioned above. I think it is especially useful right now as one of the key risks I see to Unilever is cost price inflation. That could hurt profits. But if the company passes cost increases on to consumers in the form of higher prices, that could help reduce the risk.

Meanwhile, after the recent price fall, the shares now yield 4%. I regard that as attractive for a FTSE 100 consumer goods company of this size.

I am looking forward to the prospect of future passive income from Unilever. But I am also hopeful that the Unilever share price could increase if the business performs well and sales keep growing.

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Christopher Ruane owns shares in Unilever. The Motley Fool UK has recommended GlaxoSmithKline and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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