My Unilever (LSE: ULVR) shares have climbed 5.33% so far this morning as investors piled into the FTSE 100 stock following a positive set of half-year results.
The household goods giant, posted impressive underlying sales growth of 9.1%, with operating profits up 3.3% to €5.2bn. These are the kind of results I wanted to see when I bought the stock last month, having decided it had been in the doldrums for too long.
Good news for me
I’d wanted to buy Unilever for years. I believe that every well-balanced UK share portfolio should make space for this London-listed global company, whose products are used by more than 3.4m consumers in around 190 countries.
It also offers me exposure to fast-growing emerging markets, where almost six in 10 of its customers now live. What stopped me is that I felt I had missed my chance, as the Unilever share price soared year after year. It looked a bit too expensive, trading close to 25 times earnings while yielding 2.5%, well below the FTSE 100 average.
So I decided to bide my time and wait for an opportunity. Then in June, I saw the stock’s valuation had slipped to around 18 times earnings – cheap by its standards – and pounced. It was yielding around 3.5%, too.
I’m a happy investor this morning. However, after digging down into today’s results, I see that Unilever still isn’t firing on all cylinders. Volumes actually declined 0.2% and the cost-of-living crisis is squeezing margins. Unilever does retain pricing power, but only up to a point.
It still has a long way to go but I didn’t buy the stock hoping to turn a quick profit. I just wanted a low entry point for what I hope will be a long-term holding. If all goes well, I’m planning to hold Unilever all the way to retirement and beyond.
Plenty of challenges
There are no guarantees when buying individual equities, even a big, solid, globally-diversified £106bn behemoth like this one. Management took flak after blundering into today’s woke wars, a zero sum game with no winners on either side.
Recent share price performance has been limp. The stock is down 6.28% over five years and has edged up just 2.93% in the last 12 months. I feel this vindicated my judgement in resisting the urge to buy when it was flying high and everybody loved Unilever.
As I’m already in positive territory, I can sit back and relax while new CEO Hein Schumacher works hard turning things around. Too many of the company’s products are clinging on to market share (or losing it), rather than winning more. Its brands are out of favour in Europe, where volumes fell 10% in the second quarter. Those margins need wrestling upwards.
It’s obvious what Unilever needs to do. Getting there won’t be easy. This is all nitty-gritty stuff. Yet with full-years sales expected to rise by 5%, there are grounds for optimism. I’m now tempted to add to my existing Unilever shares over the summer. Trading at 18.11 times earnings and yielding 3.49%, they still look good value to me.
