Should You Buy Unilever?
LONDON -- I believe consumer goods giant Unilever should continue to head higher over the medium term. I am convinced that strength across its stable of famous brands, accelerating business in developing markets, and ongoing work to improve efficiency across the group provide the bedrock for stellar earnings growth on an extended time horizon.
Excellent groupwide performance recorded in 2012
Unilever reported a 10.5% increase in group sales in 2012 to 51.3 billion euros, with underlying sales growth of 6.9% reported during the period. This powered net profit 7% higher to 4.9 billion euros.
The company reported solid growth across all divisions, with double-digit growth seen in the personal-care and home-care arms, and sales increasing across each major geographical region. In particular, the firm continues to gallop away in developing regions. About 55% of total turnover now originates from these markets, and underlying sales growth from these areas rose 11.4% in 2012.
Unilever boasts an enviable portfolio of household brands that are known across the globe, from Dove to Hellmann's and Flora to Domestos. Last year the company added its Magnum and Sunsilk to its collection of 1 billion euro brands, which now stands 14 strong. This gives the company fantastic pricing power, which, combined with ambitious cost-cutting initiatives and a better product mix, should help the firm continue to increase margins. Unilever grew core operating margins by 30 basis points last year to 13.8%, growth which some analysts believe the firm will beat in 2013 and potentially thereafter.
Steady earnings growth expected
City brokers expect earnings per share to edge 4% higher in 2013 to 143 pence before making a 9% ascent to 156 pence during the following year.
And the consumer product specialist also offers a juicy dividend, albeit below the 3.5% average for the FTSE 100. Respective yields of 3.1% and 3.4% are projected for this year and next, although coverage of 1.7 times for 2013 and 2014 is below the traditional safety watermark of two.
Unilever currently trades on P/E ratings of 19.2 and 17.5, respectively, for 2013 and 2014 -- far ahead of a reading of 12.2 for the broader food-producers and processors sector. But I believe the firm remains on course to maintain steady earnings growth and dividend increases, with its position in defensive consumer-end markets helping to protect the bottom line.
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The article Should You Buy Unilever? originally appeared on Fool.com.Royston does not own shares in Unilever. The Motley Fool has recommended shares in Unilever. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.