Image source: Unilever plc
Yesterday I was saddened to learn of the death of Charlie Munger, vice president of the American conglomerate. Berkshire Hathaway. Munger and his old friend and business partner Warren Buffett brilliantly transformed Berkshire into a $780 billion giant. If Munger had been alive today, I wonder if he would have noticed the decline Unilever (LSE:ULVR) share price?
Buffett tried to buy Unilever
Warren Buffett and Charlie Munger were big fans of Unilever, having tried to take over Goliath, the Anglo-Dutch consumer goods maker, almost seven years ago.
In February 2017, kraft heinz —backed by Warren Buffett and private equity billionaire Jorge Lemann—launched an audacious £115 billion ($143 billion) bid to buy the FTSE 100 firm. After fierce board resistance to this acquisition, this mega deal was abandoned within two days.
Following this approach, the group’s shares rose 13% to a record high, before falling 8% after the deal was scrapped. If this deal had closed, it would have been the second largest corporate merger at the time.
Unilever share price falls again
After things settled down, Unilever shares reached even higher levels, justifying the directors’ decision to reject the offer.
On August 30, 2019, the shares were on the rise, closing at 5,196 pence each. They have since fallen sharply and have lost value over the past four years.
At its 52-week high, the stock briefly hit 4,483.25p on April 28. However, on the morning of Thursday 30 November, the stock fell to a 52-week low of 3,716.5p.
The share price has since recovered and currently stands at 3,762.5p, up 1.2% from the 2023 low. This values this European giant at £93.9bn, making it the fourth largest member of the FTSE 100.
Here’s how the stock has performed on five time scales:
| One month | -3.3% |
| Six months | -6.6% |
| 2023 to date | -10.0% |
| One year | -9.2% |
| Five years | -11.3% |
Over the five periods ranging from one month to five years, Unilever shares have generated negative returns, including a 10% drop in 2023. However, I am almost certain that this losing streak will not continue forever.
I already have unilever
If my wife and I didn’t already own shares of this long-standing business, I would have done everything I could to buy a stake today. For the record, we bought shares at 4,122.2 per share in mid-August.
To date, we are facing a capital loss on paper of 8.7%. Frankly, I’m surprised at how much Unilever’s share price has fallen in recent months. To me, this looks like a classic “fallen angel” stock, rather than a dead company.
Today, Unilever shares look as cheap as they have for years. They trade at a modest 13.4 times earnings, yielding an earnings yield of 7.5%. This means that the dividend yield of 4% per year is covered by a decent 1.9 times earnings.
To be honest, if I were Warren Buffett and I could buy this entire business at Unilever’s current share price, I would buy it. To me, this is a big business – it’s experiencing short-term turbulence that will be ancient history in five years.
Of course, I could be proven wrong. Unilever’s sales growth could continue to slow, impacting its revenue, profits and cash flow. Likewise, its popular brands could lose favor with younger consumers. But I’m happy to take the opposite side of this bet as an existing shareholder!
