Unilever (LSE: ULVR) shares are popular with many UK investors. It’s the biggest company on the FTSE 100 by market capitalisation. It’s a truly international company, even previously having a dual Anglo-Dutch structure. This has now been solidified with a listing just in the UK.
There’s a lot to like for investors who want a solid, relatively defensive company, but I’m not so sure it’s a share I want to put my money into. Especially after last week’s results.
A brief look at the results
Those results showed that full-year underlying sales rose by 1.9%. The majority of the improvement came from rising volumes rather than price hikes.
Underlying operating profits were below what analysts had expected. They rose 0.7%, if exchange rates are included, and decreased by 5.8% if the exchange rates are stripped out.
On the positive side, debt was down, cashflow was up, and the dividend was increased. It went up by 4% in the fourth quarter. Net debt is now equivalent to 1.8 times cash profits, so is well under control.
Commenting on the results, Alan Jope said: “Early in the year, we refocused the business on competitive growth, and the delivery of profit and cash as the best way to maximise value. We have delivered a step change in operational excellence through our focus on the fundamentals of growth. As a result, we are winning market share in over 60% of our business in the last quarter, on the basis of measurable markets.”
The pros and cons of investing in Unilever shares
Unilever’s relatively small exposure to cleaning products, especially compared to Reckitt Benckiser, means it has struggled more during the pandemic. Beauty and personal care products make up a larger part of its sales. They account for about 41% of the total and haven’t been so much in demand as customers stay at home.
Unilever does have strong brands, growing international markets and strong environmental, social, and governance (ESG) credentials. The ESG focus could attract future investment, as this is becoming a more important investing criterion for many institutional investors.
The company has also identified areas it wants to offload, such as its tea business. This streamlining will allow it to focus its huge marketing budget on the brands that will deliver higher growth, and margins.
Overall, as I’m looking at shares that will increase my passive income in future years, while also boosting the capital growth of my portfolio, I just don’t see Unilever shares fitting the bill. Its growth is sluggish—that was the case even before the pandemic. Also, the shares trade on a price-to-earnings ratio of around 17, so aren’t cheap. I don’t think management is doing enough to boost margins. So far I don’t think the strategy is either working or moving fast enough.
So, even after the recent share price fall, and despite the company having many strengths, I’m not tempted to buy Unilever shares.
