Unilever: The most BORING stock in the UK, now INTERESTING?

This analysis is provided by Eden Bradfeld at BlackBull Research.


Unilever is one of those stocks I’m aware of but have never had much interest in — it’s a large conglomerate that makes very boring things, like Dove soap (they also make Ben and Jerry’s ice cream). However, the great thing with boring companies is that they’re fairly predictable — if you think about companies that are inevitables, I guess Unilever is one of them.

The stock has done nothing for five years. The company had Paul Polman as CEO from 2009 – 2019, and the company did very well. After Polman stepped down the company entered into stagnation. There was nothing wrong with the company, per se – it just stagnated, and margins were largely boosted by price increases rather than organic growth. There was also the mistaken pushback to Polman’s “woke” ethos – from 2009 – 2019 the company roughly quadrupled in value. Subsequent management did not do this. “Woke”, works, in this context – Ben and Jerry’s has been one of Unilever’s fastest growing brands.

What are the catalysts to buy this company now?

1) New CEO. Fernando Fernandez – described as a “human tornado”. He has a mandate from the board to turnaround the company, which includes spinning off divisions.

2) The big issue here is the food division – it’s lower margin and on a peer basis is valued at a lower multiple. We need to start there.

3) The company has signalled it intends to spin-off its ice-cream unit, likely as a new company. The ice-cream unit renders around ~8bn in sales, and holds a 20% market share globally. That’s value, and the new co should list at a +2x revenue multiple, which implies a +16bn EUR valuation (analyst estimates are around +18bn)

4) I believe the market doesn’t truly value the ice-cream unit as it stands (as part of a conglomerate). Much like the listing of UMG (ex-Vivendi), I expect this implies +10bn upside.

5) You can find comparators with other consumer spin-offs, like Haleon and Kenvue – Haleon has appreciated +29% since listing, while Kevnue has appreciated +25% in the past year.

6) Management’s metrics are tied to indicators I like, like ROIC (Return on Invested Capital). Under Polman, Unilever had a +18% ROIC. It currently sits at 11% or so. If management can move the needle on this (by divesting, focusing, and leveraging their highly profitable units), then shareholders will see the compounding virtue of ROI.

I still have some pause — it isn’t that cheap for the UK market, so you need to consider the differential between the US (and those US listed consumer companies) and the UK. Then again — if you consider the spin-off of the ice cream business reducing the lower-margin food business portion of Unilever’s revenue down to about 22%, then there’s a case to be made for multiple revaluation…