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I classify Unilever (LSE: ULVR) among the most resilient stocks in the FTSE 100. Over five years, we’ve seen a 9% increase, although that’s pretty modest. But there was not much damage from Covid. And the dividend has remained strong.
Unilever has just made solid progress in 2022. Reported revenue grew 14.5%, with underlying sales up 9%. Underlying earnings per share dipped a bit, by 2.1%. Free cash flow has decreased, but still reached 5.2 billion euros.
Unilever returned 1.5 billion euros through share buybacks and paid dividends worth 4.3 billion euros. If you look up the definition of ‘cash cow’ in a financial dictionary, I wouldn’t be surprised if it just says ‘Unilever’.
billion brands
The company has been strengthening its focus on what it calls its billion-plus brands. They are the big sellers, including the likes of OMO, Hellmann’s, rexona, sunsilkand Magnum. The 1 billion+ brands accounted for 53% of revenue and generated underlying sales growth of 10.9%.
In the words of CEO Alan Jope, the council has also “We prioritize intensifying our investment in brand and marketing.“. That has come, so far, in the form of extra spending of half a billion euros.
Reaction
My first reaction to these headline moves is positive. Profits might have gone down a bit. But considering what Joppa calls “high inflation of input costs“I think this is an impressive performance.
Once again, the competitive advantage enjoyed by a company like Unilever stands out. It has brand power. And he has the purchasing power that comes with his enormous spending. That means you can suffer less than smaller competitors.
Combine that with the essential nature of its products, and I think Unilever must be one of the safest investments on the UK stock market.
Cost savings
Looking ahead, the update says “As of July 1, 2022, our simpler, more category-focused operating model for Unilever is in place, organized around five business groups and a technology-driven backbone, Unilever Business Operations. We are on track to deliver the new structure within existing restructuring plans and deliver around €600 million of cost savings over the first two years after July 1, 2022, with the majority in 2023.“.
Forecasters expect Unilever to continue generating cash and paying dividends. They indicate returns of around 3.6% that will increase to 4% in the coming years. Forecasts are often unreliable. But for a company with proven long-term stability, I suspect they’ll be close.
Verdict
I’m speaking well of Unilever here, but it’s not without its risks. The main one I see in the short term comes from inflation and recession. The company has reported an increase in the costs of inputs. But I’m afraid we may have only seen the beginning, and we could have a tough 2023. So I suspect that Unilever shares could have a stagnant year ahead.
We’re also seeing high valuations, with price-earnings (P/E) multiples around 20. In tough economic times, investors might balk at that. However, I still rate Unilever as a potential buy for long-term value investors.
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