Unilever is lately a hot topic among DGI investors. Maybe it is only my perception, but even today I found an interesting post about UL on suredividend.com. Is company a buy at current prices? Let’s have a closer look.

Well, Bob Ciura presented company quite in details, so I truly recommend reading his post to get more details. Below I will present some of my thoughts about company.

First of all geographical split of sales:

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We can see that most of sales is generated outside US. This is important when you think about current strong USD. Company is doing less money overseas only due to currency issues. If USD depreciates then this consumer staple company can benefit the most.

Expected growth is about 3-5%. Well keep in mind that markets in which company operates are risky, so it is not strange that investors will require some premium.

Now let’s look on financials:

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2013-2015 results were declining/flat. Should the trend reverse in the future then share price can go up. Valuation is at around 18-20 P/E ratio (depending which year you are looking at) and around 12 times EBITDA. Well, JNJ, KMB are traded on similar multiples. KO and PG are more expensive, but also their business is more stable/less emerging markets dependent.

As it comes to dividend yield it is a decent 3.5%, but other names are also paying around 3% or more. Does 0.5% in yield makes so much difference? Especially think, that Unilever is not buying back shares, which makes a huge difference comparing to KO, which is systematically buying back shares. Do not look only at dividend yield, look also at repurchase yield!

Is recent drawdown due to UK/Brexit issues? Well, I am not really sure. Many consumer staples companies went down by around 15%, so for me it is rather weakness of whole segment. Look, market is strong, consumer staples are stable/defensive businesses, it is not strange that investors prefer bets with higher beta. Also keep in mind, that after 15-20% drawdown valuation is neutral, so we can say that this segment was simply too expensive.

 

Summing up, I see no special story at UL, which doesn’t mean it is a bad opportunity to buy. Simply what I think is that whole consumer staples segment was rerated downward, many companies are looking more or less attractive and there is potential for them to grow. But why should I buy Unilever vs Johnson & Johnson? Valuation for now is neutral for me, I see no special opportunity.

 

Disclaimer: UL – no position