Of the 23 analysts covering Unilever (LSE:ULVR), over half of them think investors should buy the stock at the current share price. But I’m not doing this – at least not right now.
The company’s preparing to spin off its ice cream division in 2025. And while I think this is a good move, it creates too much short-term uncertainty for me.
Ice cream sales
Unilever has some of the world’s leading ice cream brands on its roster. And its most recent update reported strong sales growth of 9.8%, albeit set against a weak performance in 2023.
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Despite this, the company intends to divest this part of the business in the next 12 months and I think the rationale for doing so is sound. The main issue is that it’s capital intensive.
Ice cream needs a frozen supply chain, making it expensive to produce, transport, and store. This might not be an issue for a company that has a wider a range of frozen products, but that’s not Unilever.
As a result, the firm’s looking to focus on its other divisions. And these have also been growing well in 2024, which I think justifies the CEO’s ongoing strategy.
The big risk
The big unknown with Unilever at the moment is what the company will be able to get by selling its ice cream business. And there’s a lot at stake here. During the first nine months of 2024, the unit brought in around 15% of total revenues, so the company needs to realise a decent price by selling the business. But there are no guarantees.
I think Unilever’s best outcome is to find a buyer that can incorporate its brands into an existing infrastructure. But the intention to sell is well-known and that isn’t usually conducive to attracting high prices.
Earlier this year, the Financial Times reported earlier this year that Unilever’s looking to launch the unit as a standalone business. And that’s what’s catching my attention for 2025.
The opportunity
I’m waiting to see what happens with Unilever this year. But I’m very much open to the idea that there could be a big opportunity on the way if the ice cream unit trades by itself on the stock market.
Stocks that come onto the market through divestitures are often unpopular with investors. Haleon, for example, initially fell 22% after being spun out of GSK, before climbing 55%.
Likewise, WK Kellogg shares fell 30% after being divested from Kellanova. But it has almost doubled since then and investors who bought at the lows would be getting over 6% back each year in dividends.
This is where I think the opportunity might be. I’ll be looking at what happens with the ice cream company, especially if it appears as a standalone business on the stock market.
Risks and rewards
Uncertainty over the outcome of the firm’s plan to divest the business makes it hard to work out what the Unilever share price should be. But I’ll be keeping a close eye on the company.
With where the stock is right now, it’s likely I’ll be more interested in the new company than the existing one. But I’m not ruling anything out going into 2025.
