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Why I see digital technology spurring the Unilever share price

Michael Baxter
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By most investing criteria, Unilever (LSE: ULVR) is an appealing company. An investment in the company won’t make you rich, but then companies that operate in mature sectors, as Unilever does, rarely do see spectacular growth, but Unilever shares could be effective at protecting your wealth.

What Unilever also offers, however, is a strategy that is creating a new impetus, a new burst of energy, that could catapult it towards faster growth. I refer to its digital strategy and, in particular, the way it is implementing digital transformation.

Thinking digitally

We live in an age of disruption; traditional companies are coming under threat. That is not necessarily new per se, but the speed with which it is happening is.

To avoid the fate of Blockbusters or Kodak, to avoid being ‘ubered’, mature companies that operate via a proven but old business model need to adapt. They need to be able to experiment, where necessary change plans (pivot), and sometimes need to consider ideas that might seem a little ‘out there.’

To an extent, this means thinking digitally. It means digital transformation, removing rigid structures such as silos that can create barriers within an organisation, so that if the company spots a metaphorical iceberg ahead, it can take the necessary action in time.

Unfortunately, thinking digital is not something companies that make up the FTSE 100, or indeed the FTSE 350, are famous for. Unilever is an exception.

Data-driven

Bear in mind that this is a company that has seen its shares rise by around 7% this year, by around 67% over the last five years and by more than fourfold so far this century. Bear in mind, too, that at the current share price Unilever dividends equate to a yield of around 3%. For a company as old as Unilever, with a market cap of around £123m, this performance is somewhere between solid and impressive. 

Its current CEO, Alan Jope, talks about Unilever’s digital plans whenever he gets the opportunity. He talks about how the company is leveraging data, digitising “all aspects of the company,” and making digital a constant presence within the company in “everything” it does. He also talks about shifting the company culture from being “hierarchy led to network.”

Indeed, when creative consultancy Radley Yeldar examined digital communications among FTSE 350 companies, Unilever was ranked as one of the top five. This was from a survey conducted a couple of years ago, before Alan Jope took over as CEO.

It seems to me that a FTSE 100 stalwart, often described as a dependable stock, which was already turning heads with its approach to digital, is now putting even more emphasis on this area. This will, in turn, help Unilever react promptly to, and in some cases anticipate, the very rapid changes that technology is creating. 

Not bad for a company that can trace its history back to a margarine factory setup when Queen Victoria was not even an old lady!

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Michael Baxter does not own shares in any company mentioned. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019