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Unilever share price: 5 things to look out for in its Q1 results

The British-Dutch transnational consumer goods company is looking to improve its profit margins to 20% by 2020, with investors excited for an update on its progress in 2019.

Unilever will release its first quarter (Q1) trading update on Thursday, with investors eager for an update on the company’s progress in achieving an ambitious 20% profit margin 2020.

The British-Dutch consumer goods company is likely to make good on its promises, but the business has got off to a slow start this year due to the loss of income from several disposals it has made.

IG has outlined five things worth keeping an eye on in its latest trading update.

Delivering on its 2020 margin target

The primary goal for Unilever this year is improving its profit margin in-line with its rivals like Proctor & Gamble, Reckitt Benckiser and Kraft-Heinz.

Unilever’s margin has risen from 16.4% in 2016 to 17.5% in 2017 and last year came in at 18.4%. However, that is still lagging Kraft-Heinz and other peers Procter & Gamble and Reckitt Benckiser which all have margins above the 20% threshold, the last of which boasts the best profitability with an adjusted operating margin of 26.7%.

Unilever revenues expected to fall

According to a company-compiled consensus, Unilever is expected to report a 2.3% year-on-year drop in revenue in Q1 to €12.33 billion primarily because of the loss of income from businesses it has sold since, mainly its spreads business that was offloaded to private equity firm KKR for €6.8 billion.

The headline figures will be underlying sales growth and its underlying operating margin. Looking at the consensus figures for the year it is clear there is an expectation for Unilever to get off to a slow start, with underlying sales growth forecast to be 2.8% - below the company’s target to deliver annual growth of between 3%-5%.

Unilever M&A activity

The consumer goods company has been busy managing its 400-strong portfolio of brands that include Dove, Persil and Magnum to name a few. Unilever has looked to strengthen its long-term growth brands and divest its poorer performing ones.

The company has taken an interest in driving inorganic growth through natural and purpose-driven brands, with the business announcing its acquisition of healthy snack maker Graze in February, as well as buying French cosmetics brand Garancia.

Beauty & Care, the largest of its three divisions, has been particularly bulked-out through acquisitions over the last two years. Considering Unilever has said the unit is its best-placed for growth some believe Unilever’s new CEO could pursue a much larger, more transformational merger with a beauty and cosmetics giant such as Estee Lauder to propel the business to the next level.

Horlicks and Indian expansion

A recent, and transformational acquisition, made by Unilever was its $3.3 billion purchase of GlaxoSmithKline’s consumer nutrition business, which saw it buy beverage brand Horlicks in India.

The deal will help Unilever grab market share in a major emerging market at a time when healthier alternatives for children are gaining traction in India at a time when its population is booming.

Unilever’s Brexit preparations

In January, the company’s CEO Alan Jope said that Unilever was stocking ‘weeks of inventory – not months or days’ in preparation of a no-deal Brexit.

But with Brexit now delayed until October 31, investors will be interested to see how, if at all, the extension of Article 50 has impacted its business.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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