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Unilever: the Personal Care dividend machine

The global consumer staples group Unilever is now the fourth largest company in the FTSE 100. Unlike some of its FTSE 100 peers, such as BP and HSBC, it has been a reliable dividend machine. Volume growth has slowed down recently but Unilever's exposure to emerging markets bodes well for the long-term.

The chances are that you have used a Unilever product today with the company having 11 of the top 50 global fast moving consumer goods brands.These include Lynx/Sure deodorant, Simple shampoo, Dove and Persil.


Unilever has 11 of the top 50 fast moving consumer good brands

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The largest division is Personal Care at 39% of fourth quarter revenue while Food came in at 27%. The two smaller divisions are Home Care at 19% and then Refreshment at 14% (the home of Ben & Jerry ice creams).

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Unilever is aiming to increase its exposure to the premium segments of the consumer space. Acquisitions are being targeted in Personal Care and in the Food division new growth opportunities are being pursued.

A notable feature of Unilever is that 57% of revenue in 2014 coming from emerging markets. This makes the shares a good way to benefit from the growth of the middle class in countries like Brazil, India, Indonesia and China.


Unilever by revenue by market and long-term trend

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However, a slowdown in emerging market saw fourth quarter volume fall by 0.4% but in the whole of 2014 volume increased by 1%. This compares to volume growth of 2.5% in 2013, 3.4% in 2012 and 1.6% in 2011.

Unilever did increase its market share in 2014, despite increasing prices by 1.9%, and as such underlying revenue grew by 2.9%. It was also notable that the core operating margin rose by 0.4%, at current exchange rates, to 14.5%.


A tough environment in many markets

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The group saw reported revenue fall 2.7% in 2014 to €48.4bn as a 4.6% foreign exchange headwind offset 2.9% underlying revenue growth. It was impressive, therefore, that Unilever managed to increase core EPS by 2% to €1.61.

An attraction for investors in Unilever is the dividend which was €1.14 in 2014 and has grown at 8% a year from 1979 to 2013. However, the forecast dividend coverage ratio is not high from 2015 to 2017 at 1.5X.

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Unilever's dividend track record

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Looking at the valuation and the forecast P/E in 2015 is 20.8X with a yield of 3.3%. This falls back to 19.5X in 2016, with a yield of 3.5%, and then 18X in 2017 with a forecast yield of 3.7%.

Looking further into the future and the forecast P/E ratio is 15.4X for 2018 with a yield of 4.8% that is 1.3X covered. In 2019 the forecast P/E ratio is 14.4X, with a yield of 5% that is 1.4X covered, which is not expensive.

Unilever's top position in key emerging markets

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Unilever doesn't appear “cheap" but the company offset headwinds in 2014 to increase earnings by 2%. With a strong consumer franchise, and attractive emerging market positions, the shares look set to continue to perform well.

This report was produced by Fat Prophets Senior Research Analyst, Andrew Latto



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