How Unilever Could Benefit From Acquiring Equilibra

by Trefis Team
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Unilever (NYSE:UL) has signed an agreement to acquire a 75% stake in Italian personal care and well-being company Equilibra for an undisclosed sum. This move furthers Unilever’s bid to strengthen its presence in the premium personal care segment, as it moves away from its stagnating foods business. Equilibra has a growing presence in the natural personal care segments, offering Skin Care and Hair Care product lines. This acquisition is a small but positive step towards consolidation of Unilever’s position in the global personal care market.

Below we discuss the segment and its expected 2018 performance on our interactive dashboard for Unilever’s Personal Care segment. You can modify our forecasts for the segment’s revenues to see how changes would impact the company’s overall revenues.

Personal Care Segment Is A Key Growth Driver For Unilever

Personal Care is Unilever’s largest division, having overtaken the Foods division in 2011 to take the top spot. The company’s shifting priority is evident from the fact that the revenue share of its Foods unit has fallen from 30% in 2011 to 23% in 2017, while the share of its Personal Care segment has grown from 33% to 39% over the same period.

Unilever’s Personal Care division is comprised of Skin and Hair Care, Deodorants and Oral Care divisions. With nearly 70% of the segment’s revenues coming from the Skin and Hair Care segment, and the company’s increased focus on this division through recent acquisitions, we believe the Personal Care segment will be a key growth driver for Unilever moving forward. It should be noted that Unilever is the second-largest Personal Care business in the world after L’Oreal. As Unilever focuses on innovations using proprietary global technologies to meet consumer needs, it can build on its Personal Care brands through product differentiation aimed at consumer preferences. These initiatives, along with key strategic acquisitions, will ensure that this segment becomes a key growth driver for the company going forward.

In its 2013 annual report, Unilever stated that it is utilizing cash flows from its Foods business to fund acquisitions in the Personal Care and Home Care categories. This marked the beginning of Unilever’s enhanced focus on the Personal Care category, which was refined further in the subsequent years. More recently, Unilever named the expansion of the segment through acquisitions as one of its top priorities. Some of the recent acquisitions in the space include Quala, Carver Korea, Sundial, and Schmidt’s Naturals. 

In 2017, Unilever’s Personal Care segment’s revenues grew to $23.4 billion while its EBITDA margin stood at around 23%. Since the company’s acquisition strategy is focused on the high-margin premium segment, it should result in some margin expansion over the long term. Consequently, we estimate that the EBITDA margin of Unilever’s Personal Care Segment will improve to 24.4% by the end of 2022. We have assumed that inorganic growth will proceed gradually, in line with Unilever’s acquisition strategy.

Our $60 price estimate for Unilever’s stock is around 10% ahead of the current market price.

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