Stock of the day 15/07/2016 – Unilever PLC

With a product line so expansive it is almost guaranteed to have something in nearly every home in the western world, can Unilever continue to climb following its Q2 and half year report next Thursday?

Despite the wider market turbulence at both the start of the year and since the UK's EU referendum Unilever has looked pretty unstoppable in 2016. Brushing off the January and February panic that plagued so many other stocks Unilever had risen to a fresh all-time high of £33.33 by the middle of April. The company’s one real fallow period occurred not soon after, the stock trading between £30 and 32 for all of May and the first half of June. Yet, just as it did in the first few months of the years, Unilever prospered where other stocks fell, surging nearly 15% in the aftermath of the Brexit result to hit a new peak of £37.16 thanks to the slump in sterling against the euro. Unilever sits at a current trading price of £35.47 (IT-Finance.com, 15/07/2016).


(Source: IT-Finance.com 15/07/2016)

The company’s rise wasn’t a given, however. With its fourth quarter report back in January Unilever warned of ‘high volatility in 2016’, while posting a sharp drop in full year profit across 2015, falling 8% to €7.2 billion. It seems that a 4.1% rise in underlying sales, as well as recovery in emerging markets (where Unilever makes over half of its revenue) in 2016, helped to mitigate this warning, allowing the company’s stock price to escape relatively unscathed.

In April the company posted a similarly mixed Q1 report, with unfavourable currency movements causing a 2% fall in sales to €12.5 billion. Consumer demand, meanwhile, remained ‘fragile’, though underlying sales did rise by 4.7% year-on-year thanks to the continued relative strength of its emerging markets performance when compared to the stagnation seen in the developed markets.

In June Unilever then warned of the effects of a Brexit, stating that it would be ‘negatively impacted’ if Britain chose to leave the EU and that the decision may cause the company to be run in a ‘fundamentally different’ way. Yet, as mentioned, above even this couldn’t impact Unilever’s stock price for long, the company continuing to surge to fresh all-time highs.

In terms of the Q2 and half year figures next week Unilever is expected to benefit from the pound’s continued weakness against the euro, with analysts at Numis pointing out that the company only has a ‘modest UK sales element’ and therefore will likely see little material negative impact from the Brexit.

Unilever PLC has a consensus rating of ‘Hold’, with a series of target prices between £36 and £39.50.