Unilever shares drop as investor’s confidence remains shaken

Shares fall 2% despite underlying sales growth.

Article updated: 18 October 2018 8:00am Author: Helal Miah

  • Third quarter figures showed the group miss analyst expectations as poor volume growth drags on underlying sales, but management remain confident that it will deliver 2020 goals.
  • Investors question confidence in management following relocation debacle.
  • We continue to recommend the shares as a ‘buy’ due to the defensive nature of the company and growth opportunities.

Unilever’s third quarter figures painted a mixed picture, but overall left the market a little disappointed with the shares dropping roughly 2% at the open. The group underlying sales growth came in at 3.8% compared to the same period last year which was overall short of analyst’s expectations. This was mainly as a result of poor volume growth of just 2.4% but the group has managed to pass on the rising costs of commodities as price growth contributed 1.4%. This is somewhat pleasing to see given the poor contribution from price rises during the first half and at a time when there are concerns that some shoppers, especially younger ones, have less brand loyalty and the threat of competition from own brand products at discounters like Aldi and Lidl.

There continues to be strong growth from Asia however the Americas and European sales did fall short of expectations. These figures could have been worse if it wasn’t for the exceptionally warm weather which helped drive sales of its ice cream products. Sales in Brazil recovered after the truckers strike in the second quarter, while the hyperinflationary situation in Argentina resulted in them not including the distorting figures in the comparable sale numbers.

Going forward, the management are confident in being able to deliver 3-5% underlying sales growth and remain on track for its 2020 goals. However, the recent U-turn over the relocation of head offices to the Netherland’s leaves a lot of investor’s bitter that management did not pay enough attention or respect to their concerns. Investor’s confidence in the management has been shaken and many will wonder if a management shakeup will be coming sooner than expected. Markets previously expected the CEO, Paul Pollman, to step down next year but that could now come sooner.

Despite the events at Unilever, the recent market sell off and rising dollar strength, the shares at the moment remain relatively unchanged since the start of the year. Overall, it is a defensive company which offers growth opportunities by way of its ever-expanding exposure into the emerging markets which is one of the key reasons we have it on our ‘buy’ list and we are happy to continue to do so for investors seeking a balanced return and willing to accept a medium level of risk.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.