At the beginning of 2017, Brazilian private equity group 3G tried to swallow FTSE 100 stalwart Unilever (LSE: ULVR) to add to its burgeoning empire of companies around the world. The $143bn deal was also supported by none other than Warren Buffett, who is widely considered to be the best investor who has ever lived.
The predators were fought off by Unilever’s CEO Paul Polman who believed that the deal was not in the best interest of all stakeholders. Speaking to the Financial Times towards the end of 2017, he said the bid was “a clash between a long-term, sustainable business model for multiple stakeholders and a model that is entirely focused on shareholder primacy.”
And while the offer might have produced an immediate gain for investors, I think Unilever’s CEO made the right choice. By focusing on the long term, shares in Unilever have returned 13.2% per annum over the past decade, nearly doubling the return of the FTSE 100.
Moving on
Unfortunately, after winning over investors in 2017, Polman attracted the ire of shareholders this year when he decided Unilever would consolidate its headquarters in Rotterdam, closing down its London HQ in favour of a simpler operating structure.
Shareholder pressure forced the company to reconsider this change, and now it has also forced Polman out of his job. Today Unilever has announced that Polman will retire in 2019, after 10 years at the helm. He is going to be replaced with insider Alan Jope, who is currently president of Unilever’s beauty and personal care division.
Business as usual
By appointing an insider to follow Polman, I think Unilever is set to continue on its current trajectory. The company has always been committed to sustainable long-term growth, and with Jope in the role, this is unlikely to change.
What’s more, the group has been focusing on expanding its role in emerging markets over the past 10 years, which, in my opinion, should protect it from any Brexit fallout.
In the past few days, it has emerged that the company is leading the bidding for GlaxoSmithKline‘s Indian Horlicks nutrition business. It is expected that the business could attract a price tag of $4bn, which is expensive, but Unilever already has a significant presence in India. The firm has been operating there for decades and has an extensive distribution network in place. I think this advantage gives the group scope to expand this business with little effort — something competitors that have less experience operating in India might struggle to do.
Unilever’s emerging markets presence has helped grow earnings at a steady 9% per annum for the past six years, and I expect this trend to continue as the group invests in its customer offering. This earnings growth has enabled management to grow the dividend by a steady 8% per annum. Today the stock yields 3.2%.
So overall, if you’re looking for a well-run, Brexit-proof income and growth stock to add to your portfolio, Unilever certainly ticks all the boxes for me.
