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blue-chip

Should You Exit This NYSE-Listed Consumer Staples Stock – UL

Jan 18, 2022 | Team Kalkine
Should You Exit This NYSE-Listed Consumer Staples Stock – UL

Unilever PLC

UL Details

Unilever PLC (NYSE: UL) is a multinational fast-moving consumer goods (FMCG) firm that focuses on the Beauty & Personal Care (BPC), Home Care (HC), and Foods & Refreshment (FR) areas. The BPC segment's five categories include deodorants, skin cleaning, hair care, oral care, and skincare. The Home Care segment sells laundry and household care products. In the FR section, you may find food and ice cream. Products from the company are distributed in 190 countries.

H1FY21 Results:

  • Flat Topline: Turnover grew 0.30% to EUR 25.79 billion during H1FY21 (ended June 30, 2021) from EUR 25.71 billion during H1FY20.
  • Decline in Bottomline: The net profit for H1FY21 was EUR 3.40 billion, compared to EUR 3.54 billion during H1FY20, for diluted earnings per share (EPS) of EUR 1.19.
  • Leveraged Balance Sheet: The company's cash and cash equivalents (including short-term investments) were at EUR 5.07 billion as of June 30, 2021, with a total debt of EUR 27.54 billion.

Key Risks:

  • Plastic Usage Risk: Plastic is often employed in the packaging of the company's products. However, its long-term effectiveness is dependent on reducing the amount of virgin plastic consumed, increasing the utilization of recycled plastic, and improving the recyclability of the packaging.
  • Supply Chain Risk: The timely purchasing of supplies and distribution of items to customers is critical to the company's success. Unfortunately, physical disruptions, environmental and industrial disasters, trade restrictions, or challenges with a significant supplier could all impact its capacity to deliver orders to customers via the supply chain network.

Outlook:

  • FY21 Guidance: According to UL, as of November 01, 2021, cost inflation is still relatively high and will continue next year. It has responded and will continue to respond by altering prices and implementing other cost-cutting strategies across its categories and markets. As a result, it anticipates meeting its FY21 margin forecast, which is likely to remain essentially flat.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

UL Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

UL's share price has surged 3.01% in the past month and is currently leaning towards the lower-band of the 52-week range of USD 50.60 to USD 61.81. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 60.16. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 46.42.

Considering the company's acquisition prospects, a decline in outlook, deterioration in the bottom line, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 54.29, up 1.14%, as of January 14, 2022.

 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.