Consumer
giant
Unilever’s
fourth-quarter
results
on
Thursday
are
all
about
sales
volume.
At
the
time,
its
third-quarter
sales
growth
of
5.2%
was,
overall,
on
track.
But
the
fine
details
weren’t.
The
growth
driver
was
pricing,
but
volumes
were
down.
The
key
now
is
to
show
it
is
capable
of
turning
volume
decline
around.
The
quarterly
trend
in
volumes
for
2023
shows
otherwise,
however,
with
Q1
2023
down
0.2%;
Q2
down
0.3%;
and
Q3
down
0.6%.
Unilever’s
own
guidance
for
overall
sales
growth
for
the
full
year
2023
is
at
least
5%.
Should
I
be
Cautious
About
Unilever’s
Shares?
But
Morningstar
analyst
Ioannis
Pontikis
is
cautious
about
some
of
Unilever’s
categories.
He
says
they
are
“experiencing
elevated
competition
from
private-label
and
down-trading
activities”.
In
plain
English,
consumers
are
buying
cheaper
own-brand
products.
In
his
most
recent
company
report
from
October
2023
on
Unilever,
Pontikis
noted
that,
in
the
third
quarter
of
2023,
“the
percentage
of
Unilever’s
group
activities
winning
market
share
over
a
12
months
time
decreased
further
to
38%
from
41%
in
the
second
quarter,
versus
a
target
of
more
than
50%”.
That
was
caused
by
changing
stock
policies
at
resellers,
pricing
dynamics,
and
consumer
shifts
in
a
number
of
markets.
Part
of
this
“disappointing
figure”
is
caused
by
Unilever’s
own
decision
to
rationalise
its
product
offering.
But
Pontikis
also
sees
“elements
of
higher
competitive
intensity
from
lower-priced
brands
and
private-label
products,
especially
in
categories
that
are
less
brand-driven
and
more
discretionary
in
nature:
like
ice
cream”.
What
Are
Unilever’s
Business
Plans
Now?
Along
with
its
third
quarter
results,
Unilever
announced
a
three-pillar
action
plan
to
drive
growth:
faster
growth,
productivity
and
simplicity,
and
better
performance
culture.
Pontikis
believes
“the
plan
is
in
the
right
direction
but,
as
always,
successful
execution
and
implementation
will
determine
results.
“Unilever
expects
the
action
plan
to
help
the
company
achieve
its
multi-year
financial
goals:
underlying
sales
growth
of
3%-5%;
modest
margin
expansion;
100%
cash
conversion,
mid-teens
return
on
invested
capital;
EPS
growth,
and
an
attractive
dividend,”
he
says.
Next
to
volume,
pricing
is
the
other
sales
mix
element
and
the
immediate
challenge
for
Unilever
and
its
peers
is
passing
cost
inflation
on
to
consumers.
Unilever
has
been
successful
so
far,
says
Pontikis,
“in
leading
pricing
while
at
the
same
time
minimising
volume
impact,
a
function
of
good
demand
elasticities
and
strong
brand
positions.
We
expect
2023
to
be
another
year
of
above-average
pricing
contribution
to
organic
growth”.
At
at
current
share
price
of
around
€46
(£39.40),
Unilever
is
slightly
undervalued
to
Morningstar’s
Fair
Value
estimate
of
€52.
Key
Morningstar
Metrics
for
Unilever
Shares
• Fair
Value
Estimate:
EUR
52/GBX
4,560;
• Current
Price:
EUR
46,00;
• Morningstar
Rating:
★★★★;
• Morningstar
Economic
Moat
Rating:
Wide;
• Morningstar
Uncertainty
Rating:
Low.
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