Unilever’s Upside Potential
Unilever (NYSE:UL) is a behemoth of a company. Its a transnational consumer goods business co-headquartered in Rotterdam, Netherlands and London, United Kingdom. Like billions of people all around the world probably use Unilever products every day. Their brands include Axe, Dove, Lipton, Breyer’s, Ben & Jerry’s, Hellman’s, Magnum (the chocolate bar not the condoms, that’s Church & Dwight (NYSE:CHD)), Colman’s, Jif, Klondike, Q-tips and Sunlight to name just a few.
Unilever is a good dividend payer and has raised its dividend for 38 consecutive years. The company has grown its earnings per share at an average annual rate of 5.1% over the past five years. Smart money vouches for the company: Unilever was in the portfolios of 14 hedge funds at the end of the third quarter of 2018. It is Europe’s seventh most valuable company. In the past few years Unilever has shown through its acquisitions that it is on top of both macro trends affecting all businesses as well as micro trends in the consumer market. The acquisitions that highlight this are Dollar Shave Club and Schmidt’s Naturals.
Future-Proofing a Company
One of the biggest current existential risks to a portfolio, even of well-established businesses, is the pace of technological change that companies are facing and the disruption it is bringing. Franchises that are considered solid could have their value-add evaporated in just three years time.
An example of this is United States razor manufacturer Gillette, owned by Procter and Gamble (NYSE:PG), a brand which was thought to be rock solid was disrupted by upstart Dollar Shave Club. In a short span of time Gillette lost a ton of brand equity and internet-based newcomers to the razor industry took 20% of the market share in the blink of an eye. In the food and beverage industry Fever-Tree Drinks (LON:FEVR), a soft drink manufacturer, has substantially impacted the market and disrupted the incumbent leader Schweppes (LON:CBRY). Unilever’s value comes from its brands and for them to have invested in a startup brand shows how aware the company is to this type of disruption.
In December of 2017 Unilever acquired Schmidt’s Naturals, a soap and deodorant company, for an undisclosed sum. Just this month Schmidt announced a line of deodorant products infused with either hemp or cannabidiol (CBD) to be released later this year. Michael Cammarata, chief executive officer of Schmidt’s Naturals, has said that “CBD is probably the most powerful ingredient that we’re going to see over the next decade in the personal care market.”
The research backs him up. Almost 7% of Americans are already using cannabidiol products, according to Cowen & Co, and the market is forecast to increase to 25 million consumers spending $16 billion US a year by 2025. With such a big opportunity at state its no wonder Unilever was “part of the process” in launching Schmidt’s Naturals’ line of CBD products. Unilever allows Schmidt’s Naturals to operate independently but the company assists its subsidiaries (around 400 of them) with research and development, legal resources, distribution and supply chain issues. Unilever is most likely doing a test run on cannabis products through this upcoming CBD line so don’t be surprised if you see more CBD and THC infused products by Unilever hit the shelves. Tapping into the cannabis market would see big returns and growth for Unilever.
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