Written by Summary
Unilever and P&G are both large global consumer companies that have shown very different performances during the last few years.
Pushed by active investor Nelson Peltz, P&G has undergone a significant transformation and has emerged very strong out of that.
Unilever has clearly lacked behind, but Nelson Peltz announced a stake in the company last month.
If he would use a similar playbook as he used for P&G, the potential could be huge for Unilever and its investors.
I estimate this potential and the results indeed look very promising.
JJFarquitectos/iStock Editorial via Getty Images Activist Investor Nelson Peltz announced a stake in Unilever (NYSE: UL )( OTCPK:UNLYF )( OTCPK:UNLVF ) last January. He has been a driving force for Proctor & Gamble (NYSE: PG ) to transform from a lacklustre company into a high performing growing company during the last few years. In this article, I assess what a similar transformation could mean for Unilever as a company and its investors. I included Unilever as a defensive reliable company in my perfect portfolio (backbone) for turbulent times . If they manage to execute a similar transformation like P&G, they could turn from a stable defensive company into a much more positive growth story with great investment returns. Introduction
Both Unilever and Proctor & Gamble have extensive coverage on Seeking Alpha, so I will not spend many words describing both companies. As most of you probably know: Unilever is a British-Dutch consumer goods (mostly food) giant with HQ in London. P&G is an American consumer goods (mostly non-food) giant. Both have a diversified portfolio with premium brands and they offer their products all over the world.
There is a clear difference between their share price performance during the last 5 years. Data by YCharts There are reasons for this difference. Several years ago, forced by activist investor Nelson Peltz, P&G has executed a strong business transformation by rationalizing its product portfolio and boosting its digital capabilities. He stepped down from the P&G board a few months ago, considering his work to be completed there. This helped them to return to top-line and bottom-line growth from 2018 onward and this gave their share price wings. Data by YCharts Unilever had a basically flat revenue and share price development during the same period. On top of that the company got issues with the Dutch government about their plans to simplify their corporate structure. Also they got under fire because of the Ben&Jerry’s politically very sensitive stance into the Israeli situation . Finally, they had initiated a surprising extremely high bid for the consumer health division of GlaxoSmithKline (NYSE: GSK ), which was received very badly by the markets and shareholders. Data by YCharts If Nelson Peltz can help Unilever also unlock the same potential as a few years ago with P&G, this can turn out to be very attractive for investors. In addition, the company managed to simplify their corporate structure by consolidating its HQ into London. The Ben&Jerry’s stance did cause a lot of negative PR, but over time this will either fade out or the company finds a way to overrule this business division. Finally, Nelson Peltz did manage to get P&G back on track without large acquisitions, I assume he would try to do the same with Unilever.
In this article, I assess what a similar transformation story like P&G could mean for Unilever as a company and its investors. I assume that the other above-mentioned factors will also be resolved a few years down the road and create no more shadows on the company and share price performance. Revenue and profit potential
Unilever’s revenue has been basically flat with only 2% growth since 2018, P&G has been growing top-line by 17% since then. Data by YCharts These developments are a bit colored for Unilever by FX effects since Unilever reports its results in EUR. Nevertheless, the picture is very similar if you look at the developments in EUR.
If Unilever would follow the same upwards trend as P&G after its transformation in 2018/2019, revenue could increase by 15% in the next 3-4 years. This would bring revenue from EUR 52B in 2021 to EUR 60B in 2025. Data by YCharts The operating margin of Unilever has for years been below that of P&G, but the spread has widened significantly in recent years. P&G has improved operating margins from 20% to 23.6% from 2018/2019 to now. Unilever however has decreased from 18% to 16.6%.
If Unilever could reverse the trend […]
source Huge Potential For Unilever After Executing A P&G-Like Transformation
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