Should You Buy Unilever?

LONDON -- I believe consumer goods giant Unilever (LSE: ULVR  ) (NYSE: UL  ) should continue to head higher over the medium term. I am convinced that strength across its stable of famous brands, accelerating business in developing markets, and ongoing work to improve efficiency across the group provide the bedrock for stellar earnings growth on an extended time horizon.

Excellent groupwide performance recorded in 2012
Unilever reported a 10.5% increase in group sales in 2012 to 51.3 billion euros, with underlying sales growth of 6.9% reported during the period. This powered net profit 7% higher to 4.9 billion euros.

The company reported solid growth across all divisions, with double-digit growth seen in the personal-care and home-care arms, and sales increasing across each major geographical region. In particular, the firm continues to gallop away in developing regions. About 55% of total turnover now originates from these markets, and underlying sales growth from these areas rose 11.4% in 2012.

Unilever boasts an enviable portfolio of household brands that are known across the globe, from Dove to Hellmann's and Flora to Domestos. Last year the company added its Magnum and Sunsilk to its collection of 1 billion euro brands, which now stands 14 strong. This gives the company fantastic pricing power, which, combined with ambitious cost-cutting initiatives and a better product mix, should help the firm continue to increase margins. Unilever grew core operating margins by 30 basis points last year to 13.8%, growth which some analysts believe the firm will beat in 2013 and potentially thereafter.

Steady earnings growth expected
City brokers expect earnings per share to edge 4% higher in 2013 to 143 pence before making a 9% ascent to 156 pence during the following year.

And the consumer product specialist also offers a juicy dividend, albeit below the 3.5% average for the FTSE 100. Respective yields of 3.1% and 3.4% are projected for this year and next, although coverage of 1.7 times for 2013 and 2014 is below the traditional safety watermark of two.

Unilever currently trades on P/E ratings of 19.2 and 17.5, respectively, for 2013 and 2014 -- far ahead of a reading of 12.2 for the broader food-producers and processors sector. But I believe the firm remains on course to maintain steady earnings growth and dividend increases, with its position in defensive consumer-end markets helping to protect the bottom line.

The canny guide for clever investors
If you already hold shares in Unilever, check out this newly updated special report, which highlights a host of other FTSE winners identified by ace fund manager Neil Woodfod. Woodford -- head of U.K. equities at Invesco Perpetual -- has more than 30 years' experience in the industry and boasts an exceptional track record when it comes to selecting stock market stars. The report, compiled by The Motley Fool's crack team of analysts, is totally free and comes with no further obligation. Click here now to download your copy.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2318092, ~/Articles/ArticleHandler.aspx, 10/1/2014 10:52:25 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement