A Look At Unilever’s Valuation

by Trefis Team
Unilever Group
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Unilever‘s (NYSE: UL) turnover revenues decreased 5% year-over-year (y-o-y) in the first nine months of fiscal 2018, primarily due to a negative currency impact of 8.1% and a net impact from the disposal of the spreads business to KKR. The company’s organic growth of 2.9% was mostly comprised of volume growth of 2.3% and pricing growth of 0.6%. The consumer goods company reported an improvement across its major business divisions, and benefitted from strong volume growth in emerging markets.

We have summarized our forecasts in our interactive dashboard on What Is Unilever’s Fundamental Value Based On Expected CY 2018 Results. You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The charts below show some of the key steps in identifying Unilever’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which in turn impacts its enterprise value (assuming a constant EBITDA multiple). Unilever’s stock price has fluctuated between $51 and $57 since the beginning of fiscal 2018. We have maintained our long-term price estimate for Unilever at $58, which is around 10% ahead of the current market price.

Detailing Forecasts For Unilever

Looking ahead in fiscal 2018, Unilever expects its full-year underlying sales growth to be at the bottom end of its range 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. Overall, we expect Unilever to generate around $61.4 billion (+1% y-o-y) in revenues in 2018, and earnings of almost $7.7 billion. Of the total expected revenues in 2018, we estimate $13.7 billion in the Foods business, around $11.5 billion for the Refreshments business, nearly $23.8 billion for the Personal Care segment, and almost $12.2 billion in the Home Care business.

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. 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, Schmidt’s Naturals, and Equilibra. Such key strategic acquisitions will ensure that this segment becomes a key growth driver for the company going forward. The company is expected to benefit from its ‘Connected 4 Growth’ initiative, which includes supply chain simplification, innovation, and cost-saving initiatives.

Our forecasts for the year are summarized in our dashboard for Unilever. If you have a different view, you can modify various inputs to see how updated inputs impact the company’s valuation. You can also share the links to scenarios created on our platform.

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