Unilever: Q3 Still Distorted By COVID; Be Patient With 3.7% Dividend Yield

(Preview) Company Update (ULVR LN) (Buy)

Summary

• Q3 was again driven by COVID-related factors, impacting different categories differently; regional sales growth varied due to mix.

• Inflation increased in Q3, and more price hikes were implemented as a partial offset; full-year EBIT margin is expected to be "around flat"

• There are tentative signs of improving competitiveness, including in the U.S.; sales growth continued to be strong in India and China.

• The Tea business was sold for €4.5bn, with proceeds likely to be used to fund buybacks worth 3%+ of the current market capitalization.

• With shares at 3,900p, we expect annualized returns to be in the 12-17% range, an attractive risk/reward. The Dividend Yield is 3.7%. Buy.

Introduction

We review our Unilever PLC investment case, following the Q3 trading update on October 21 and the sale of the Tea business on November 18.

We initiated our Buy rating on Unilever in December 2020. Since then Unilever shares in London have lost 9.2% (after dividends) in GBP.

Unilever has continued to be neg…