At first glance, the Unilever (LSE: ULVR) share price has had a good year. It’s up 25% over the last 12 months.
Yet lately the excitement’s worn off. It’s barely shifted in recent months. Normally, that wouldn’t worry me. I buy shares like this with a much longer-term view.
My problem is this. Despite holding the stock, I’ve never quite shaken off the view that it’s lacking oomph. Yes, it boasts a vast range of popular everyday brands such as Dove, Domestos, Hellmann’s and Knorr, but where can it go from here?
Can this FTSE 100 stock fight back?
In recent years, management’s been involved in a lot of navel-gazing, as it works out how to control its sprawling empire. It’s worked hard to drive greater value out of its products, such as focusing on its 30 ‘Power Brands’. But is this FTSE 100 defensive favourite too solid for its own good?
CEO Hein Schumacher’s trying to streamline operations, targeting key growing markets like India and ditching non-core brands such as Unox and Zwan.
Yet his efforts haven’t won over investors. On 6 January, RBC Capital Markets downgraded Unilever to Underperform over fears it will undershoot its 2% volume growth target. It’s struggled to top 1% over the last decade. RBC also said Unilever’s underinvesting in its product portfolio, which could hamper growth.
This isn’t the only reason the shares have struggled. With interest rates expected to stay higher for longer, many investors have decided to stick to cash and bonds to preserve their capital, rather than FTSE defensives. While Unilever’s at the safer end of the stock spectrum, its share price can still be volatile.
Unilever has a solid track record of long-term dividend growth. However, today’s trailing yield of 3.22% can be beaten by a simple savings account.
That could swiftly change if interest rates fall. On that front, there’s a little more optimism. Some analysts reckon the Bank of England could cut base rates four times this year, to kickstart the ailing UK economy. That would definitely give Unilever a jolt.
Is it time for me to sell?
The danger is that inflation stays higher for longer than we’d like, whipped up by Donald Trump’s corporate tax cuts and trade tariffs. That will drive up input costs, squeezing margins. Given the mixed prospects, the shares don’t look brilliant value, trading at 21 times earnings.
As a big global company, Unilever has been targeted by campaigners over climate change, pollution, Gaza and the war in Ukraine. It only got round to selling its Russian business last autumn. It’s also been on the end of a lawsuit from its own subsidiary Ben & Jerry’s, which alleged it was silenced over its support for Palestinian refugees.
Schumacher’s battling to cut costs and recover lost market share. Yet I can’t say I’m hugely excited by the opportunity here. Right now, I’m short of cash to buy shares that excite me. Selling Unilever could be the way to raise it. I’m certainly tempted.
