VALUATION HIGHLIGHTS

1. Personal Care constitutes 50% of the Trefis price estimate for Unilever Group's stock.
2. Foods & Refreshment constitutes 34% of the Trefis price estimate for Unilever Group's stock.
3. Home Care constitutes 15% of the Trefis price estimate for Unilever Group's stock.

WHAT HAS CHANGED?

1. UL Stock Performance

UL stock has faced a notable decline of 25% from levels of $60 in early January 2021 to around $45 now (mid-April, 2024), vs. an increase of about 35% for the S&P 500 over this roughly three-year period.

UL has had a poor run, with the stock losing value in each of the last 3 years. Returns for the stock were -11% in 2021, -6% in 2022, and -4% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UL underperformed the S&P in 2021 and 2023.

2. 2023 Results

Unilever saw its revenue fall 1% to €59.6 billion in 2023. This can be attributed to lower sales of its food and refreshment, and home care products. Unilever reported earnings of €2.56 per share in 2023, versus €2.99 in 2022. The company continues to expect at least 3% underlying sales growth for the full year 2024.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Personal Care EBITDA Margin: Unilever's Personal Care EBITDA margin has steadily increased from 21.8% in 2014 to 24.6% in 2021, but dropped to 20.1% in 2022. We expect the segment's EBITDA margins to rise to 26% by the end of our forecast period. Our price estimate for Unilever can decrease by 5% if Personal Care Ebitda margins fail to cross 23% by the end of our forecast period.

BUSINESS SUMMARY

Unilever N.V. (NYSE: UN) is a public limited company registered in the Netherlands. The company's shares and depositary receipts for shares are listed on the Euronext Amsterdam and New York Stock Exchange.

Unilever PLC (NYSE: UL) is a public limited company registered in the UK and Wales with shares listed on the London Stock Exchange, and American Depositary Receipts, on the New York Stock Exchange. The two parent companies, NV and PLC, together with their group companies, operate as a single economic entity, the Unilever Group.

Business Information

Unilever is a market leader in mass skin care products and deodorants and the second-largest player in daily hair care products. Principal brands in personal care include Dove, Lux, and Rexona (including Sure and Degree), Sunsilk (including Seda / Sedal), Axe and Pond's. Other important brands include Suave, Clear, Lifebuoy, and Vaseline, together with Signal and Close Up in oral care. Personal care accounts for 40% of Unilever's revenues and 33% of its operating profit.

Unilever is also a global major in savory products and dressings. The company manufactures soups, bouillons, sauces, snacks, mayonnaise, salad dressings, olive oil, margarine, spreads, and cooking products such as liquid margarine and some frozen foods. It markets them under key brands such as Knorr, Hellmann's, Becel/Flora (Healthy Heart), Rama/Blue Band (Family Goodness), Calvé, WishBone, Amora, Ragú, and Bertolli.

Unilever is also a leading manufacturer of ice cream sold under the international Heart brand, including Cornetto, Magnum, Carte d'Or, Solero, Wall's, Kibon, Algida, and Ola. Other popular brands include Ben & Jerry's, Breyers, Klondike, and Popsicle. Unilever is a leading manufacturer of tea beverages. Principal tea brands are Lipton, Brooke Bond, and PG Tips. As reported by the company, the ice cream and beverages business segment also includes weight management products, the principal being Slim-Fast. It also includes nutritionally enhanced products that are sold in developing markets. Foods & beverages account for 40% of Unilever's revenues and 56% of its operating profit.

Unilever's home care business includes laundry products, such as tablets, traditional powders, and liquids for washing clothes. Tailored products, including soap bars, are available for lower-income consumers. Unilever's brands include Omo (‘Dirt is Good' platform), Surf, Comfort, Radiant, Skip and Snuggle. Unilever's household care products include surface cleaners and bleach, sold under the Cif, Domestos, and Sun / Sunlight brands. Home care accounts for 20% of Unilever's revenues and 11% of its operating profits.

Unilever's strategy for growth has been to strengthen its existing popular brands through innovation and by improving its products rapidly to suit the latest consumer preferences. Unilever has also accelerated changes in its production & distribution systems to make its supply chain more cost-competitive and to deliver its products faster across multiple markets. "One Unilever" program is one such example. Unilever's business is highly diversified, and it makes conscious efforts to have an equally diverse workforce to cater to its consumers in international markets more efficiently.

SOURCES OF VALUE

Trefis believes that Unilever's Personal Care business, specifically the Skin and Hair Care segment, is the most value-accretive division of the company. This is because of the following reasons:

- The company is currently pursuing an aggressive acquisition strategy in the personal care business, specifically in the premium category. It acquired a subscription-based men's grooming brand 'Dollar Shave Club' for $1 Billion to enter into the shaving market. The strategy is aimed at consolidating Unilever's market share in the global personal care products industry and shoring up its defense against Procter & Gamble's increased focus in this sector. As a result, we believe that the revenue share of Unilever's Skin and Hair Care division is likely to increase in the medium term. Consequently, in the future, Unilever will likely derive an increasingly higher proportion of its value from the Skin and Hair Care segment.

KEY TRENDS

Aggressive expansion across emerging markets

Unilever has stronger distribution networks in emerging markets compared to P&G (whose emerging markets expansion has turned out to be hugely expensive) and also gets strength from a strong "shakti women" network for sales in rural and remote markets of Asia and Africa. Unilever also succeeded in keeping its prices more competitive than its rivals and introduced smaller pack sizes, which has helped it grow volume market share in these markets.

Overhaul of the supply chain and business operations ensure improved efficiency and operating margins

Unilever is gradually integrating its supply chain and business operations to reach a large number of consumers across multiple markets more cost-effectively. Although restructuring charges related to streamlining existing production and distribution infrastructure may negatively impact Unilever's operating margins in the short term, cost savings from increased efficiency is expected to drive margins higher in the long term.