This is despite solid half-year performance
Ambiguity around Unilever’s future in the FTSE 100 causes concern
- This morning’s half-year results presented good numbers as underlying sales growth and underlying earnings per share increased by 2.7% and 7.8% respectively, though slightly below market expectations
- But the news was overshadowed by the possibility of a headquarter move to the Netherlands which could result in the shares being dropped from the FTSE 100 index
- We continue to recommend Unilever as a lower risk ‘buy’
Unilever, the global household goods and food group reported first half numbers that were marginally lower than market expectations. During this period it experienced underlying sales growth of 2.7% (excluding the spreads business) while the underlying earnings per share rose by 7.8% to €1.22. The numbers could have been better if it weren’t for issues in some of its key markets including in Brazil where an extended truckers strike affected distribution.
The group sales growth was mostly driven by volume growth rather than price increases, this has been the issue for several quarters and something management would like to improve upon. It also felt the impact of currency movements but overall group sales and the performance of individual divisions were good, while its key sales to emerging markets saw stronger growth.
Management kept their guidance for full year underlying sales growth of 3-5% with an improvement in margins and a strong cash flow; they also remain on track for their 2020 goals. However the results this morning have been overshadowed by the possible move of its headquarters to the Netherlands, management confirmed this morning that shareholders will vote on the proposals on the 25 October. While simplification of the group’s structure should be welcomed, many UK based investors will object to the proposals as the move could result in the shares being dropped from the FTSE 100 index. Benchmark investors will be forced sellers and could face the possibility at selling the shares below their intrinsic value.
Despite these issues, we maintain our ‘buy’ recommendation on the stock as we believe it provides an opportunity for the longer term growth in the emerging markets for relatively lower risk.
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