Unilever F N LASH OTE U 14TH 2020
Transcript of Unilever F N LASH OTE U 14TH 2020
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
1
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Source: Big Research;
Source: BiG Research;
Source: BiG Research;
Source: BiG Research;
Notes: All quotes were updated in Bloomberg at 11h45 of September 14th, 2020.
Relevant Information: Use the following link to view our most recent publications: https://www.big.pt/InformacaoMercados/TradingIdeas/Index/-1 Use the following link to see our recommendation history: https://www.big.pt/pdf/Newsletters/nld.pdf
Unilever (Ticker: UNA)
Description Unilever is one of the world’s largest and oldest consumer goods businesses, and around 2.5 bn people use the company’s products every day. Unilever has a growing portfolio of brands, in which 12 of them have an annual turnover of more than EUR 1 billion and 84% are either top 1 or 2 market positions. The group divides its operations in three segments: Beauty & Personal Care (42% of sales), Foods & Refreshment (37%) and Home Care (21%). Their largest markets are America (with 32% of sales) and Europe (22%), followed by Asia, Africa and Middle East. Nowadays, Unilever employs more than 150 thousand people and manages over 300 factories.
Investment Case Leading Position: Unilever is one of the leading groups in every segment, and 84% of its brands are either top 1 or 2 markets positions. Focus on healthier options: Consumer’s desire for plant-based and healthier products is growing rapidly. Unilever has already a broad range of brands exposed to this category, and the last acquisitions were also in line with that trend.
Dependency on emerging market’s growth: Over the past years, both Europe and North America have experience low comparable growth, leaving emerging markets with the most attractive growth opportunities. Nevertheless, the latter’s comparable growth has also decelerated in 2019, and covid-19 pandemic can extend that negative trend for a longer than expected. Free Cash Flow Generation: Unilever has consistent and predictable cash flows with an operating cash flow yield higher than 6%. Also, capex accounts for less than 20% of the total operational cash flow, leaving Unilever with a robust margin to pursue fast-growing opportunities (acquisitions), reduce debt or recompensate shareholders.
Ticker Site BiG UNA
Ticker BiGlobal Trade UNA
Ticker BT24 UNA
Ticker BiG Power Trade UNA
P/E Ratio 2020E 21.02
P/BV Ratio 8.65
EV/EBITDA 13.84
Unilever
Price 51.62
52 week high 55.70
52 week low 38.42
YTD 0.8%
Average daily volume (un) 4,826,040
Market Capitalization (mn) 136,583
Beta 0.68
Dividend 1.64
EPS 2.15
Price and Performance (Values in USD)
Buy 13
Hold 11
Sell 4
Analysts Consensus (last 3 months)
Sales (USD mn) 51,980
EBITDA (USD mn) 10,690
Number of Employees 153,000
ROA 8.8%
ROE 41.6%
D/E 2.02
Dividend Yield 3.18%
Financial Data
Source: Company’s data
Asia and Africa46%
North America18%
Latin America14%
Europe22%
Revenue Distribution (2019)
Beauty & Personal Care
42%
Home Care21%
Foods & Refreshment
37%
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
2
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Stable Financial Position: Unilever doesn’t have the most robust balance sheet - Net Debt/EBITDA of 2x -, nevertheless is far from being distress. There is still space, if needed, to leverage the current financial position to complete an acquisition. Dividend Distribution: Unilever is a dividend Aristocrat and has increased dividends by an average of 8% yoy over the last 38 years, with no reductions. The current dividend yield is 3.2%.
E-commerce opportunity: In 2019, Unilever's e-commerce sales grew 30% yoy, accounting for 6% of total turnover. During the first semester of 2020, online sales grew close to 50%, accounting for 8% of total sales. Unilever wants to invest and increase its presence within the online retail. For that, the group aims to build a balanced e-commerce model that includes e-commerce retailers, bricks and mortar online sales, and direct-to consumer businesses.
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
3
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Source: Company’s data
Source: Company’s data
Income Statement - Sales: Beauty & Personal Care is the largest segment accounting for 42% of sales,
followed by Foods & Refreshment and Home Care with 37% and 21%, respectively.
- CoGS (56% of revenues): o Distribution and Production accounts - 13% of revenues o Raw and packaging materials and goods purchased for resale – 40% of
revenues. - Selling and administrative expenses (25% of revenues):
o Brand and marketing investment – 14% of revenues o Overheads – 11% of revenues. R&D is included here and accounts for less
than 2% of revenues. - Other operating expenses:
o 2019: includes a restructuring cost of EUR 1.1 bn attributed to supply chain optimization projects and organizational change programs across markets all of which have been further accelerated during 2019.
o 2018: includes a gain of EUR 4.3 bn on disposal of spreads business to KKR. - Effective Tax: around 27%
Free Cash Flow - Unilever has a robust operational cash flow generation, and in 2019 achieved up to
EUR 8 bn - Op. CF Yield above 6%. The group invests around EUR 1.5 bn in capex, which less than 3% of sales.
- The dividends declared in relation to 2019 were EUR 1.64 (2018: EUR 1.55) per NV ordinary share and GBP 1.43 (2018: GBP 1.35) per PLC ordinary share, which corresponds to a dividend yield of ~3.2%. The dividend distribution was not affected by covid-19 pandemic.
IS (USD mn) 2017 2018 2019
Revenues 53,715 50,982 51,980
COGS 30,484 28,703 29,102
Selling expense 13,731 12,816 12,931
Other (gain) 543 -3,176 1,239
Operating Income 8,957 12,639 8,708
Interest and other income 1,004 608 627
EBT 7,953 12,031 8,081
Others (gain) -173 -361 -211
Taxes 1,670 2,572 2,263
Non controlling 433 419 401
Net Income (Shareholders) 6,023 9,401 5,628
Earnings Per Share 2.14 3.48 2.14
FCF (USD mn) 2017 2018 2019
Operational Cash Flow 7,796 7,318 8,056
Net Income 6,456 9,788 6,026
D&A 2,025 2,216 1,982
Elimination of (profits)/losses on
disposals
-298 -4,313 60
Changes in WC -9 -793 -68
Others -378 420 56
Investment Cash Flow -5,879 4,644 -2,237
Capex -1,621 -1,424 -1,429
Acquisitions/disposals -4,335 5,757 -945
Outros 77 311 137
Financial Cash Flow -2,020 -12,113 -4,667
Debt change 6,247 4,001 999
Dividends -3,916 -4,066 -4,209
Share Repurchase -5,014 -6,020 -
Change in short-term borrowings 2,695 -4,026 337
Others -2,032 -2,002 -1,794
Forex -9 72 -179
Change in fcf -112 -79 973
Cash at the end of period 3,169 3,090 4,063
1.82 1.88 2.14
3.48
2.14
1.25
2015 2016 2017 2018 2019 H1 20
Earnings Per Share (EUR)
Source: Company’s data
Source: Company’s data
+10% yoy Source: Company’s data
0%
5%
10%
15%
20%
25%
47000
49000
51000
53000
55000
2015 2016 2017 2018 2019
Revenue (USD mn)
Operating Margin Organic Growth
5.0%
8.0%
11.0%
14.0%
17.0%
20.0%
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
2017 2018 2019
Operational CF (EUR mn)
Capex ROIC
2015 2016 2017 2018 2019
Beauty & Personal Care 20074 20172 20697 20624 21868 2.6% 20.7%
Home Care 10159 10009 10574 10131 10825 6.1% 12.7%
Foods & Refreshment 23039 22532 22444 20227 19287 1.5% 14.6%
Total 53272 52713 53715 50982 51980 2.8% 16.4%
SegmentsRevenue
Growth (LfL)
Operating
Margin
Revenue (USD mn)
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
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FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Source: Company’s data
Revenue Growth
Balance Sheet - Unilever has around EUR 6 bn available in cash and total debt of EUR 28.8 bn, thus
the company’s net debt is EUR 22.8 bn. - The group’s leverage ratio (Net debt/EBITDA) is close to 2x, signaling a robust balance
sheet. - Goodwill and intangible assets (brands) represent almost half the company’s book
value mainly as a result of several acquisitions over the years and the increase in the portfolio of brands.
- Regarding access to funding, as of June 30, Unilever had EUR 1.3 bn available in commercial paper and EUR 7 bn in accessible undraw standby facilities.
Last results (1st Semester 2020) Revenues: Comparable sales declined 0.1% yoy, in which developed markets grew 2.4% yoy whilst emerging markets declined 1.9% yoy. - The impact of Covid-19 varied widely across channels and categories. Channel
closures as a result of lockdowns in markets negatively impacted the food service (hotels, restaurants, etc.), out of home ice cream and Prestige businesses. Food service declined by nearly 40% yoy and out of home ice cream declined by nearly 30% yoy. Shoppers moved from offline to online channels, driving e-commerce growth of 49% yoy.
- As people spent more time at home, Unilever saw growth in home consumption of foods, ice cream and tea. It also meant that consumers had fewer personal care occasions from going to work or socializing, and thus there was a decline in the personal care business, except for hygiene products.
- The effectiveness of good hygiene practices against the spread of Covid-19 increased demand for the hand and home hygiene products, which each grew double digits.
- Greater tendency for stockpiling in US positively affected The Americas market. - E-commerce represented over 8% of the business in the first half (vs 6% in 2019),
growing by 49% yoy (62% yoy in Q2).
EPS: +9.2% yoy to EUR 1.25 Free Cash Flow: EUR 2.9 bn (vs EUR 1.5 bn H1 2019). The improvement was primarily led by favorable WC movement as Unilever enhanced the focus on receivables management, as well as reduced capex following a review of all spend in light of the Covid-19 crisis.
Balance Sheet (mn) 2019 2Q20
Assets 64,806 70,378
Cash & Equivalents 5,092 5,955
Receivables 6,695 6,955
Inventories 4,164 4,646
PP&E 12,062 11,374
Goodwill 18,067 19,675
Intagible 12,962 16,049
Other Assets 5,764 5,724
Liabilities 50,920 52,154
Debt 28,257 28,805
Accounts payable 14,762 14,602
Deferred taxes 2,573 3,276
Other liabilities 5,328 5,471
Total Shareowner's Equity 13,886 18,224
Total Equity and Liabilities 64,806 70,378
Source: Company’s data Acronyms: USG: Underlying Sales Growth, UVG: Underlying Volume
Growth; UPG: Underlying Price Growth
Source: Company’s data
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
5
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Debt - The company’s bonds maturity is the following (well distributed):
-
- As of June 30 (end H1), total cash & undrawn facilities were EUR 11.9 bn, which
represents 2.7x coverage of debt maturing in 1 year.
Earnings call (H1 2020, 30 July)
“And to avoid any doubt, I'm repeating in that our margin target outlook is withdrawn both for this year and beyond. Our focus for the year will continue to be volume-led competitive growth, absolute underlying operating profit and cash delivery. Margin is simply a byproduct of this.”
“we know from experience of many crises over the years that protecting volumes during a recession is the key to long-term competitive growth. In fact, brands which grow volume during recessions tend to grow value share over the subsequent five years, 1.4 times faster than those that don't. And we've seen strong recent increases in our household penetration for our brands. We're now just over 50% of our business winning volume market share.”
“So, we're investing more of our marketing spend on communication”
“As part of shaping our portfolio, it was actually in the second quarter that we completed the acquisition of GSK's health food drinks portfolio in India, Bangladesh, and 20 other predominantly Asian markets. We've acquired those iconic brands, Horlicks and Boost, and is very much in line with our strategy of announcing our presence in healthy nutrition”
“Currencies and commodities have been very volatile in the first half and we've seen an acceleration of currency depreciation through the second quarter.”
“at the end of December was that somewhere around 40% of our business was coming from businesses where we were growing penetration. That is now solidly above 50%. “
Source: Company’s data
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
6
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Management
Alan Jope (CEO): - Alan Jope has extensive experience across many of Unilever’s markets globally. Alan
was born in Scotland and joined Unilever in London in 1985, subsequently living and working in North America for 14 years and in Asia for 13 years. Before being named CEO in 2019, he was serving as President of Beauty & Personal Care (BPC), Unilever’s largest Division with an annual turnover of EUR 21bn in 2017.
- From 2009, Alan led Unilever's business in China and North Asia, doubling its size. He was appointed to Unilever’s Leadership Executive in 2011. His previous senior roles have also included President, Russia, Africa & Middle East, global category leader for several of Unilever's Foods businesses, and President of Unilever's Home & Personal Care business in North America. Earlier, Alan worked in a number of sales and marketing roles in the UK, Thailand, and the US.
- Alan holds a Bachelor of Commerce from Edinburgh University, Scotland. He also graduated from Harvard Business School's General Management Program in 2001.
- Remuneration: EUR 4.9 mn o Fixed: EUR 1.5 mn o Variable: EUR 3.4 mn
▪ Bonus: EUR 1.8 mn ▪ Shares: EUR 1.6 mn
Graeme Pitkethly (CFO):
- In 2015, Pitkethly was Appointed Unilever’s Chief Financial Officer and member of the Unilever Leadership Executive.
- Graeme joined Unilever in 2002 and was previously Executive VP and General Manager of the Unilever UK and Ireland business. Prior to this he held a number of senior financial and commercial roles within Unilever, including Senior VP of Finance for Global Markets, Global Head of M&A, Head of Treasury, Pensions and Tax and CFO of Unilever Indonesia.
- Graeme brings considerable internal and external experience to the role having spent the earlier part of his career in senior corporate finance roles in the telecommunications industry and at PwC.
- Graeme is a Chartered Accountant and holds a bachelor’s degree in Applied Chemistry from Strathclyde University.
- In a personal capacity, Graeme is Vice-Chair of the Financial Stability Board Task Force on Climate-related Financial Disclosures (“TCFD”).
- Remuneration: EUR 4.3 mn o Fixed: EUR 1.1 mn o Variable: EUR 3.2 mn
▪ Bonus: EUR 1.1 mn ▪ Shares: EUR 2.1 mn
Graeme Pitkethly (CFO)
Alan Jope (CEO)
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
7
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Main segments & brands
Beauty & Personal Care (42% of revenues): Main Categories
• skin cleansing (soap, shower)
• skin care (face, hand and body moisturizers)
• hair care (shampoo, conditioner, styling)
• deodorants categories
Main Brands: Axe, Clear, Dove, Lifebuoy, Lux, Pond's, Rexona, Signal, Suave, Sunsilk, TRESemmé, Vaseline 2019 Performance:
• Deodorants delivered strong, broad-based growth, supported by double digit growth from Dove.
• Growth in skin cleansing was muted by price reductions as a result of lower commodity prices.
• Growth was weak in hair care with high competitive intensity in the US and continued pressure from local players in China. Japan and Europe also underperformed.
• In skin care, Pond’s and Vaseline continued to perform well, with on-trend innovations such as Pond’s Glow Up cream.
• Oral care grew slightly and natural variants such as charcoal, aloe and clove drove growth in Smile.
• Prestige brands continued to deliver double digit growth, with strong performances from brands such as Dermalogica, Hourglass and Living Proof.
0%
5%
10%
15%
20%
25%
17000
19000
21000
23000
2015 2016 2017 2018 2019
Beauty & Personal Care
Revenue Operating Margin Organic Growth
Source: Company’s data
0%
5%
10%
15%
20%
25%
2015 2016 2017 2018 2019
Adjusted Operating Margin
Beauty & Personal Care Home Care Foods & Refreshment
0%
1%
2%
3%
4%
5%
6%
7%
2015 2016 2017 2018 2019
Organic Growth %
Beauty & Personal Care Home Care Foods & Refreshment
Source: Company’s data Source: Company’s data
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
8
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Foods & Refreshment (37% of revenues):
• ice cream
• savoury (soups, bouillons, seasoning)
• dressings (mayonnaise, ketchup)
• tea categories
Main Brands: Ben & Jerry’s, Breyers, Brooke Bond, Heart (Wall’s), Hellmann’s, Knorr, Lipton, Magnum, Pukka, Sir Kensington’s, Unilever Food Solutions 2019 Performance:
• Ice cream grew, however volumes declined due to a strong comparator from a particularly good European summer in the prior year.
• Tea also had price-led growth with declining volume due to subdued consumer demand for black tea in developed markets. Premium black tea, black tea in emerging markets and fruit and herbal variants performed well.
• Savoury declined in Europe, most notably in Germany as a result of the loss of a key customer for a period of time, sales to this customer have now resumed The newly-acquired brand The Vegetarian Butcher entered a partnership with Burger King to offer the Rebel Whopper across 25 countries in Europe.
Focus on:
• increasing plant-based products
• reducing the salt, sugar and calories in their products, and adding even more fortified ingredients
• making brands more widely available
0%
10%
20%
30%
40%
16000
18000
20000
22000
24000
2015 2016 2017 2018 2019
Foods & Refreshment
Revenue Operating Margin Organic Growth
Source: Company’s data
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
9
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Home Care:
• fabric category (washing powders and liquids, rinse conditioners)
• cleaning products
Main Brands: Cif, Dirt is Good (Omo, Persil), Domestos, Seventh Generation, Sunlight Home Care has been the company’s fastest growing segment with comparable sales growth consistently higher than 5%. Also, the profitability improved considerably over the past years. Performance 2019:
• Home and hygiene performed well, benefitting from products such as Cif surface sprays with natural cleaning ingredients.
• Hand dish wash saw continued growth momentum, with good performance from Sunlight with recycled packaging.
• Fabric performance was supported by ongoing market development driven growth in India, where we also launched premium detergent brand Love & Care. In China we successfully launched Love Home & Planet. Home Care turnover in Africa was lower than expected and declined driven by a reduction in both volume and price.
0%
5%
10%
15%
8500
9500
10500
11500
2015 2016 2017 2018 2019
Home Care
Revenue Operating Margin Organic Growth
Source: Company’s data
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
10
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Main Markets Europe: over the past years, comparable growth has been close to 0%, nevertheless the operating margin slightly improved. The European market has been characterized by deflationary conditions. The portfolio of brands hasn’t changed considerably. Asia & Africa: in this segment rely the company’s largest growth opportunities, and comparable growth has been consistently higher than 5%. In addition, the operating margin has also been constantly improving.
2015 2016 2017 2018 2019
Asia & Africa 22425 22445 23266 22868 24129 5.0% 18.3%
Europe 13553 13163 12924 12094 11369 -0.6% 14.1%
The Americas 17294 17105 17525 16020 16482 2.4% 16.3%
Total 21944 21944 24677 24651 25287 2.9% 16.8%
SegmentsRevenue Growth
(LfL)
Operating
Margin
Revenue (USD mn)
0%
5%
10%
15%
20%
25%
10,000
12,500
15,000
17,500
20,000
22,500
25,000
2015 2016 2017 2018 2019
Asia and Africa
Revenue (EUR mn) Organic Growth Adjusted Operating Margin
-5%
0%
5%
10%
15%
20%
25%
10,000
11,000
12,000
13,000
14,000
15,000
2015 2016 2017 2018 2019
Europe
Revenue (EUR mn) Organic Growth Adjusted Operating Margin
Source: Company’s data
Source: Company’s data
Source: Company’s
10%
12%
14%
16%
18%
20%
22%
2015 2016 2017 2018 2019
Adjusted Operating Margin
Asia and Africa The Americas Europe
-4%
-2%
0%
2%
4%
6%
8%
10%
2015 2016 2017 2018 2019
Organic Growth
Asia and Africa The Americas Europe
-8%
-6%
-4%
-2%
0%
2%
2015 2016 2017 2018 2019
Acquisition/Divestiture Growth
Disposals Acquisitions Total
-2%
-1%
0%
1%
2%
2015 2016 2017 2018 2019
Acquisition/Divestiture Growth
Disposals Acquisitions Total
Source: Company’s
Source: Company’s data
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
11
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
The Americas: In this segment there are two main regions that have been reporting different growth rates. On one hand, as in Europe, North American comparable growth has been close to 0%, and margins have not improved significantly. On the other hand, Latin America has been growing constantly (5% yoy in 2019) and improving its operating margins gradually.
Acquisitions and Disposals In order to deliver long-term superior value, accelerating growth is a top priority. One of the main strategies Unilever has been following is making acquisitions in fast-growing segments like plant-based foods and prestige beauty. Over the past five years, the group acquired over 30 businesses, including nine in 2019. Many recent acquisitions are growing in double digits, including Prestige portfolio, Seventh Generation and Sir Kensington's. However, some, such as Blueair, haven’t performed as expected in recent years. Main Disposals:
• Spreads business (2018): Unilever’s Spreads business included brands such as Becel, Flora, Country Crock, Blue Band, etc. Operated across 66 countries around the world and in 2016 the business had revenues of EUR 3 bn, EBITDA of EUR 0.68 bn, and assets of EUR 1.1 bn. Unilever sold the business for EUR 6.8 bn on a cash-free, debt-free basis.
Main Acquisitions:
• The Vegetarian Butcher (2019): The acquisition fitted with Unilever’s strategy to expand its portfolio into plant-based foods that are healthier and have a lower environmental impact. With this acquisition, Unilever is responded to the growing trend among consumers to increasingly opt for vegetarian and vegan meals. At the time, the products made by The Vegetarian Butcher were being sold in over 4 thosand outlets in 17 countries and the business had approximately 90 workers.
Source: Company’s
0%
5%
10%
15%
20%
10,000
12,000
14,000
16,000
18,000
2015 2016 2017 2018 2019
The Americas
Revenue (EUR mn) Organic Growth Adjusted Operating Margin
-5.0%
0.0%
5.0%
10.0%
15.0%
2013 2014 2015 2016 2017 2018 2019
Organic Growth
Latin America North AmericaAcquisitions
2020
Ice cream business - Chile
2019
Lenor Japan - kin care business
Astrix S.A - olivian manufacturer of home and personal care
brands
Fluocaril and Parogencyl - oral care brands from P&G
Graze - UK’s leading healthy snacking brand
Tatcha - apanese inspired skincare brand
OLLY Nutririon - Premium wellbeing business in the
vitamins, minerals, etc
Garancia - French derma-cosmetic brand
2018
The Vegetarian Butcher - UK
Betty Ice - Romanian ice-cream producer
Equilibra (75%) - Italian personal care and wellbeing brand
Quala - beauty & personal care and home care brands
Schmidt's Naturals - beauty & personal care company
Disposals
2020
Liquid I.IV - Health-science nutrition and wellness (US)
2019
Alsa - baking and dessert business
Spreads business
Source: Company’s
-3%
-2%
-1%
0%
1%
2%
3%
2015 2016 2017 2018 2019
Acquisition/Divestiture Growth
Disposals Acquisitions Total
Source: Company’s
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
12
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Tea Business: In January Unilever announced a strategic review of its global tea business, which includes leading brands such as Lipton, Brooke Bond and PG Tips. This review has assessed a full range of options. The group will retain the tea businesses in India and Indonesia and the partnership interests in the ready-to-drink tea joint ventures. The balance of Unilever’s tea brands and geographies and all tea estates have an exciting future, and this potential can best be achieved as a separate entity. A process will now begin to implement the separation, which is expected to conclude by the end of 2021. The tea business that will be separated generated revenues of EUR 2 bn in 2019.
Unification of Unilever’s legal structure Unilever has announced plans to unify its group legal structure under a single parent company, Unilever PLC, creating a simpler company with greater strategic flexibility. There will also be no changes to the manufacture and supply of Unilever products in The Netherlands and the United Kingdom as a result of unification. For example, the headquarters of Unilever’s Foods & Refreshment Division, which was created in 2018, and is around 40% of Unilever by turnover, will continue to be based in Rotterdam. Also, there will be no significant changes to Unilever’s footprint in the United Kingdom as a result of unification, in either jobs or investment. The Home Care and Beauty & Personal Care Divisions will continue to be headquartered in the United Kingdom, as they are currently. Unilever NV shareholders will receive one new Unilever PLC share in exchange for each Unilever NV share held. Unilever PLC will continue to be incorporated in the UK and will remain UK tax resident. This will result in a single parent company, having one class of shares, one market capitalization, and a single global pool of liquidity.
Risks
Plastic packaging: Unilever uses a significant amount of plastic to package its products. A reduction in the amount of virgin plastic, the use of recycled plastic and an increase in the recyclability of the packaging are critical to the company’s future success. Not only is there a risk around finding appropriate replacement materials, due to high demand the cost of recycled plastic or other alternative packaging materials could significantly increase in the foreseeable future and this could impact the business performance. Unilever could also be exposed to higher costs as a result of taxes or fines if they are unable to comply with plastic regulations which would again impact the profitability and reputation.
Fast changes in consumer preferences: Consumers preferences are constantly evolving. Consequently, Unilever must be able to anticipate the trend changes, and adapt its
portfolio of brands accordingly. A failure in this process can jeopardize the strength of the customer relationships and company’s ability to obtain pricing and competitive trade terms. Supply Chain: The group’s business depends on purchasing materials, efficient manufacturing and the timely distribution of products to customers. The supply chain network is exposed to potentially adverse events such as physical disruptions, environmental and industrial accidents, trade restrictions or disruptions at a key supplier, which could impact the ability to deliver orders to customers. The cost of the products can be significantly affected by the cost of the underlying commodities and materials from which they are made. Changes in trade relationships between Europe and the UK as a result of Brexit could give rise to both a supply and cost issue. Treasury and Tax: Unilever is exposed to a variety of external financial risks in relation to Treasury and Tax. The relative values of currencies can fluctuate widely and could have a significant impact on business results. Further, because Unilever consolidates its financial statements in EUR, it is subject to exchange risks associated with the translation of the underlying net assets and earnings of its foreign subsidiaries.
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
13
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Relative Valuation Unilever is trading with cheaper multiples, considering both P/E and EV/EBITDA (19.8 vs 24.6 and 13.8 vs 16.8, respectively). Partially, that can be explained with the company’s lower ROA, EBITDA Margin and a CFO/Capex. Nevertheless, Unilever pays a higher dividend yield (3.4% vs 2.6%) and has a higher FCF yield (6.6% vs 4.1%).
Graph
Source: BiG Global Trade
Calendar October 22nd, 2020: 3Q Earnings release
Source: Company’s data
NameMarket Cap
(mn)Currency P/E 2020 EV/EBITDA Div. Yield
1 Yr. Price
∆ROA
NetDebt/
EBITDACFO/Capex
Margin
EBITDAFCF / Price
COCA-COLA CO/THE 218,595 USD 27.9 20.7 3.2% -8.8% 10.0% 3.0 5.1 31.2% 3.2%
NESTLE SA-REG 313,338 CHF 25.7 16.7 2.5% -2.9% 10.7% 1.6 4.3 23.4% 3.7%
COLGATE-PALMOLIVE CO 66,226 USD 26.1 16.2 2.3% 3.2% 18.2% 1.5 9.4 27.0% 5.0%
JOHNSON & JOHNSON 390,935 USD 18.7 13.7 2.6% 15.2% 9.7% 0.4 6.7 33.9% 4.5%
UNILEVER NV 129,400 EUR 19.8 13.8 3.4% -15.5% 8.8% 2.1 5.9 20.9% 6.6%
Average exc. Unilever 24.6 16.8 2.6% 1.7% 12.1% 1.6 6.4 28.9% 4.1%
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
14
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
Appendix Q2 and H1 2020 Comparable Grow by Segments
Source: Company’s data Acronyms: USG: Underlying Sales Growth, UVG: Underlying Volume
Growth; UPG: Underlying Price Growth
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources deemed
trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a security is not a
guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities. BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management Policy.
BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions Policy.
15
FLASH NOTE – UNILEVER SEPTEMBER 14TH, 2020
Analyst: João Calado, CFA
With the contribution of: Francisco Fonseca
Research:
DISCLOSURES
• Banco de Investimento Global, S.A. is an institution registered on and regulated by the Bank of Portugal and by the Portuguese Securities Market Commission, the two main entities that regulate financial activities in Portugal.
• BiG has a Code of Conduct, applicable to all its employees that carry out activities as financial analysts, with the aim to ensure the continuation of the accuracy, competence and excellence that characterize its institutional image. This document is available for external
consultation, if required.
• The analysts in BiG’s Research Team do not, and will not, receive any kind of compensation in the scope of the regular carrying out of its recommendations, which reflect strictly personal opinions.
• There isn’t a predefined coverage policy in regards to the selection of stocks that are subject to investment recommendations.
• Clarification of the qualitative terms implied in the recommendations: o Buy, expected absolute return above 15%; o Accumulate, expected absolute return between +5% and +15%;
o Hold/Neutral, expected absolute return between -5% and +5%; o Reduce, expected absolute return between -5% and -15%; o Sell, expected absolute return below -15%;
The investment framework aforementioned is merely indicative and not globally strict.
• Unless otherwise specified, the price-targets of the investment recommendations issued by BiG’s Research Team are valid for 12 months.
• The update of the investment recommendations models and respective price-targets will occur, usually, in a period of 6 to 12 months.
• For more information please see our Disclaimer document online in this link, https://big.pt/InformacaoMercados/AnalisesBig/Outros , or please contact [email protected].
DISCLAIMER
This document has been prepared exclusively for informative purposes, and is based on publicly available information, retrieved from sources
deemed trustworthy. BiG does not assume any responsibility for the full correction of the information provided, and the information here provided
should not be interpreted as an indicator that any results will be achieved. We emphasize that the projected results are susceptible to alterations
due to changes in the assumptions that have served as basis to the information here provided. We forewarn that the previous performance of a
security is not a guarantee of identical performance in the future. Changes in exchange rates of securities denominated in a currency different
from that of the investor may lead to a negative impact on the value, price or return of such securities. BiG may provide additional information, if
so is requested. This document is not a sale proposal, nor a purchase solicitation for the subscription of any securities.
BiG ensures independence in investment recommendations under the terms of points 7.23 and 7.24 of BiG's Conflict of Interest Management
Policy. BiG continuously monitors the recommendations issued by analysts under the terms of the Code of Conduct and Personal Transactions
Policy.