What Is Unilever’s Fair Value?

by Trefis Team
Unilever Group
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Multinational consumer goods conglomerate Unilever (NYSE: UL) has reported slow growth in recent years, driven by strong competition and uncertainty in the global market. In fact, the company’s turnover declined 5% year-over-year (y-o-y) in the fiscal first half, primarily due to a negative currency impact of 11% – affected in part by the Brazilian truckers’ strike. The company’s underlying organic growth stood at 2.5%, mostly comprised of volume growth of 2.2% in the first half. Excluding spreads from the results, Unilever’s organic sales grew 2.7%, led by volume growth of 2.5%. The company was not able to generate significant growth from the spreads business of late, which resulted in the divestiture of its spreads business to KKR. However, Unilever posted an improvement in profitability, as its gross margin increased 60 basis points (bps) and operating margin grew 80 bps while underlying earnings per share rose 8% during this period.

Our $61 price estimate for Unilever’s stock is almost 10% ahead of the current market price.We have created an interactive dashboard on what Unilever is really worth, which details our key forecasts and estimates for the company. You can modify the interactive charts in this dashboard to gauge the impact that changes in key drivers for Unilever can have on our price estimate.

Overview Of Estimates


Personal Care is Unilever’s largest division, having overtaken the Foods division in 2011 to take the top spot. The company’s shifting priorities are 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. With the company’s increased focus on this division through recent acquisitions, we expect the Personal Care segment to 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 to meet consumer needs, it can build on its Personal Care brands through product differentiation aimed at evolving consumer preferences.

Overall, we expect Unilever to generate around $63.5 billion in revenues in 2018, and earnings of almost $7.5 billion. Our revenue forecast represents year-on-year growth of around 5%. Of the total expected revenues in 2018, we estimate $14.3 billion in the Foods business, around $12 billion for the Refreshments business, nearly $24.5 billion for the Personal Care segment, and almost $13 billion in the Home Care business.

In the fiscal second half, the company expects price growth to pick up as commodity inflation increases. Also, the company plans to annualize the implementation of GST in India, which has had an adverse impact at the global level on pricing. In addition, Unilever continues to forecast underlying sales growth of 3% to 5% for 2018 and an improvement to 20% in the underlying operating margin, which will keep it on track for its 2020 targets. The company is expected to benefit from its ‘Connected 4 Growth’ initiative, which includes supply chain simplification, innovation, and cost-saving initiatives. Going forward, the company expects increased investment in brands and marketing, which could help grow volumes in the Personal Care segment. We expect the company’s full-year adjusted EPS to come in at around $2.61. Altogether, our valuation dashboard suggests that Unilever’s valuation still has more upside.

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