Cube UK Report (5 Feb 2021) – Unilever stays on top of the FTSE

Cube UK Report (5 Feb 2021) – Unilever stays on top of the FTSE

Good morning folks,

Today I plan to look at Unilever’s results, and then move on to:

  • French Connection
  • On the Beach
  • Sportech

Yesterday, I also published a career update from me to members, about my return to school in my mid-30s. Don’t worry – I’ll still be publishing here every day!

Update at 6.30pm. Finished!


  • Stock data should display here.
Market cap £104.9 billion ($91.9 billion)
RNS 4th Quarter 2020 and Full Year Results
Writer disclosure No position.

The market didn’t like these numbers very much yesterday. Let’s see what happened.

Again, there’s quite a lot to unpack:

Where to begin? I’ve highlighted the bits I’d focus on:

  • Full-year underlying sales growth is 1.9%, higher than actual growth in turnover. Q4 was faster than the year as a whole, growing at 3.5%. Not bad. But note that actual Q4 turnover was lower.
  • underlying operating margin and actual operating margin down by 40bps – 60bps. Not great, but at least there is plenty of room to play with when you have an operating margin of 16%-18%.
  • annual free cash flow impressive at €7.7 billion, and higher than net income at €6.1 billion.

So my initial impression of this table is that the 2020 performance can readily support a market cap of €91.9 billion (today’s level). Assuming that we have a stable business, naturally.

There is a small (4%) increase in the dividend and this means that the yield should be somewhere in the region of 4%.

Future Strategy

There is quite a lot of strategic comment in the release. Five key elements:

Growth – investing and acquiring in high-growth areas, disposing of others.

Sense of purpose and innovation – no company would admit they don’t have a sense of purpose and innovation!

US, India, China, Emerging Markets – almost sounds like an “everywhere except Europe and Africa” strategy!

E-Commerce/digitisation and Capacity, Capability, Culture.

Financial Targets

The plan is to earn underlying sales growth faster than the growth of the markets in which they operate and within the range of 3%-5%. Faster than 2020, therefore.

They want profits to grow faster than sales, and to generate ROIC (return on invested capital) in the “mid-to high teens” – sounds good! I’d be satisfied if I earned that on all of my investments.

Net debt to underlying EBITDA of “around 2x” – also reasonable.

Speaking of which…

Net debt is currently €20.9 billion, a pleasant reduction versus €23.1 billion a year previously.

The leverage multiple (against underlying EBITDA) falls to 1.8x, versus 1.9x a year previously.

With a target of around 2x, that means they should already consider themselves to have a degree of flexibility to borrow and invest more.

I note that the net debt figure arises from €27.3 billion in liabilities, offset by  €5.5 billion in cash.

They earned ROIC of 18%, down from the prior year but still at an acceptable level in my book.

Segment Breakdown

Pricing power is the weaker point. You can see that underlying price growth (UPG) was only 0.3% for 2020. And within Home Care, price growth was negative at 0.6%.

The underlying operating margin, as already noted, was also weak.

In short: there is awesome demand for products in Unilever’s categories, but is it winning the war against no-name brands? From that regard, it looks like a stalemate currently.

Geographic performance – North America stands out with 7.7% sales growth, while Latin America also strong.

Performance in Europe was poor (sales down 1%) and tourism-related ice sales get blamed for this. India was also poor.

My view

It’s not a perfect performance, by any means – plenty of faults, plenty of things you can pick holes in.

Ultimately, though, I still see this as one of the few high-quality and large companies listed in the UK.

I’m confident that it deserves to be the most highly-valued company in the FTSE, which it is, and I am considering buying it at these levels.


French Connection

Statement regarding share price movement

An enormous 70% spike in the share price today. Unfortunately, it was from a low base and the market cap even now is just £25 million.

If you invested post-pandemic at least, you’re doing well:

Amazingly, Stephen Marks might finally be open to relinquishing control of this business.

There has been such a long time during which he might have moved on and allowed others to get it fit for the modern retail landscape. But instead it has just dragged on and on, and shareholder value has wasted away.

Despite being a 42% shareholder, his own self-interest wasn’t enough to manoeuvre a better outcome for his fellow investors by now.

Here’s the update:

The Board of French Connection Group Plc notes the recent share price movement and confirms that it has received separate approaches from each of Spotlight Brands in conjunction with Gordon Brothers International LLC (“Spotlight”) and Go Global Retail in conjunction with HMJ International Services Ltd (“Go Global”) as potential offerors for French Connection Group Plc, each of which may or may not result in an offer for the Company.

Discussions with both Spotlight and Go Global remain at a very early stage. 

Spotlight Brands is a new organisation with deep pockets. Like Spotlight, Gordon Brothers is also US-based. Go Global Retail appears to be a very similar type of investor.

My view

I think Mr. Marks has decided to move on. I could be wrong, of course. But it wouldn’t surprise me if, after many false dawns, he had let it be known that he was interested in offers.

The company’s cash reduced from £10 million to just £5 million as of July 2020.

In December, the company announced that it had secured $6.5 million of loan funds for its US operations.

Honestly, I am surprised that buyers are interested in this. Why don’t they just let it wither on the vine, and pick it up from its creditors? Do they really expect picking up the tab for £24 million of lease liabilities to be worth it?


On the Beach

AGM Trading Update

Not a surprise that this is a disaster:

…consumer demand for forward holidays has remained very weak with UK traffic, bookings and spend on online marketing activity across the first four months of the financial year down 73%, 83% and 85% respectively. 

OTB intends to achieve market share gains and therefore continues to invest in itself. I do think that makes a lot of sense – poorer, weaker competition will surely be driven out of business in this environment?

In the short-term, there is nothing to look forward to for OTB, as the CEO expects booking volumes to be weak in H1 and in H2, i.e. right through to the end of September 2021.

But the company does have a large cash balance (£39 million) and says that it is only burning £2 million per month in the absence of revenues.

It looks like it should survive, and the market cap of £560 million reflects that.



FY 2020 Pre-Close Trading Update

FY December 2020 EBITDA will be in line with expectations for this betting technology business.

Some interesting disposal figures:

The projected aggregate net cash from the above corporate transactions is £36.1 million and the Board will continue to engage with shareholders to assess the optimal use of capital.

There was year-end cash of £10 million. If I’m doing my sums right, the market cap is only an extra £11 million over the potential cash balance.

This could be worth researching in more detail!


All done! Have a good weekend.




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  • comment-avatar

    Graham. Thanks a lot for reviewing Unilever! I completely agree with your assessment and frankly am more than a bit surprised at the market’s very negative reaction to these results. A lot of the margin compression will surely reverse when Covid abates, the on-trade returns, etc. In what has been a very ‘unique’ and difficult year management seem to get very little credit for being able to grow the dividend whilst (unlike so many other companies) simultaneously deleveraging. There is definitely a risk from ‘own label’ and the usual exogenous shocks from operating in EM. But on the other hand it is also the latter EM markets which offer a lot of top line runway in the LT. Moreover, management seem aware of where they need to focus to improve the product mix. Given the rich multiples so many things seem to be trading on these days I think ‘Mr Market’ is seriously under pricing Unilever’s cash flow generation (global, defensive but with growth optionality) in our low yield world. In terms of full disclosure I’m long Unilever and have topped up more today. Wish a good weekend to all! Phil 

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