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THE Unilever share price has been hindered by investors focusing elsewhere this autumn, in particular, on fast growing technology companies. A lacklustre period for the shares has also come about amid fears of a consumer squeeze, as rising inflation takes its toll on household finances.

Today’s trading statement showed Unilever is probably no longer growing faster than its markets, with underlying sales growth (USG) of just 2.5% in the third quarter, albeit, versus strong comparators in 2020. There were volume declines across all of its business units ranging from a 0.8% decline in foods and refreshment to a 3.2% fall in home care.

The company, which owns dozens of household brands from Dove soap to Marmite, raised prices over the period and this compensated for the fall in volumes. At 35.98 pence, the quarterly dividend is down slightly on the 36.93 pence paid out for the second quarter.

A large part of Unilever’s earnings stream is defensive, as consumers around the world use its products every day. As such, it formed an important part of the global consumer supply chain during lockdown.

The company’s exposure to emerging markets means it has a growth story to tell too though, as consumers in developing countries buy household products for the first time or switch up from local brands.

Encouragingly, Unilever saw strong sales growth in emerging markets generally and in Latin America in particular over the quarter. The standout was double-digit underlying price growth offsetting a volume decline in Brazil, amid rising commodity prices and a falling currency.

Rising raw material costs remain a critical bugbear that either have to be absorbed by the company or pushed out to consumers. In these results, Unilever echoed previous comments saying it is taking appropriate pricing action and implementing a range of productivity measures to offset increased costs. It also guided for profit margins to stay “around flat” for the full year.

A perennial concern is the “Aldi effect”, whereby formerly loyal customers decide that premium prices for every day products are not justified. In Britain and many other countries too, the German discounters have had a big impact on the customer psyche, calling into question the power of brand loyalty going forward. These results may do little to allay such fears.

Unilever is undertaking a €3 billion share buyback which it said last quarter reflects its strong cash delivery. This is expected to be completed by the end of the year. It is also taking steps to streamline its operations with, for example, the demerger of its PG Tips to Lipton’s tea operations completed at the start of this month.

The Unilever share price doesn’t look cheap, trading on about 22 times earnings (16 times for the MSCI UK Consumer Staples Index) but the shares do have an attractive historic yield of 3.9%1. Cost pressures are likely to continue to weigh in the short term, but longer term growth, especially in emerging markets, remains a good reason to keep the faith.

More on Unilever


1 Bloomberg, 20.10.21, and MSCI, 30.09.21

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