Saturday, February 1, 2014

Analysis of consumer goods giant Unilever

Please read the disclaimer here:http://greedydragoninvestment.blogspot.com/p/about-greedy-dragon.html. Enjoy the article, bitches!


Sup everybody! Chinese New Year has so far been awesome for me. Had a great reunion dinner and collected a bunch of cash from my very generous family. For readers who don’t know about Chinese New Year, it’s the time when single Chinese people receive “ang pows” which are red packets that contain money from their parents, aunties and uncles. Unfortunately, the Chinese New Year racket will probably end for me next year as I would be working and ang pows will just contain token amounts. Anyway, now that we’ve done some small talk, let’s get down to business. I will be looking at Unilever plc, a high quality blue chip company. Unilever is a diversified consumer goods company engaged in the personal care, foods, refreshment and home care businesses. The company has a stable of strong brands which includes Dove, Lux, Ben & Jerry’s, Wall’s and Cif. If the pullback in stock prices continues, you might get the opportunity to invest in the company at a pretty attractive valuation. The stock trades on the London stock exchange (it also trades on the Euronext Amsterdam stock exchange). According to Google Finance, the stock closed at 2,332 Pence or 23.32 Pounds on Friday.

For the year 2013, the company achieved pretty good return on average assets and return on average equity of 11.48% and 34.22% respectively. Unilever achieved organic revenue growth at constant rates of exchange of between 3.5%-6.9% for the 5-year period of 2009-2013 which is decent considering that it’s a mature company. Unilever grew its core operating profits at a compounded annual rate of 3.53% for the 5-year period of 2009-2013.   

Unilever is well-diversified as it competes in multiple product categories in many different countries. The following tables breakdown the company’s core operating profit by geography and product category for 2013: 

Personal care
45.70%
Foods
33.88%
Refreshment
12.20%
Home care
8.22%

Asia, AMET, RUB
38.20%
The Americas
33.02%
Europe
28.78%

Based on Unilever’s diluted core earnings per share of Euro 1.58, the stock would currently have a price/earnings ratio of 17.98. I think the stock is a bit expensive right now. But if global stock prices continue to fall, maybe you could get the opportunity to invest in the stock at a more reasonable price. I think the stock would be a good candidate for a passive income portfolio if you could buy it at a price/earnings ratio of 15 or below (based on diluted core earnings). Based on the dividends declared over the past 12 months, the stock would currently have a gross dividend yield of 3.90% which is quite healthy.


I personally am not looking for reasonable prices currently. I’m looking to be a greedy bitch; I want to invest in stocks that would give me a license to fucking print money. I would be interested in investing in mature, blue chip companies like Unilever if they dropped to prices where their dividend yields would be north of 7%. But Unilever is a high quality company, so I doubt it would experience such a significant drop in price. But I guess there’s no harm in hoping that it would. Hope didn’t work out for Obama, but maybe it would work out for me. Thank you for reading. Take care and stay rational. Gong Hey Fat Choy, bitches!    

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