7.31.2022

MIDAS STOCK TIPS: Clean - from the struggle of the big brand leaders | it is money

Week after week, the cost of living crisis drives up the prices of everyday necessities like shower gel and liquid detergent.

Housewares giants Unilever and Reckitt told a tale of price inflation when they released results last week, but also upgraded earnings forecasts, suggesting sales will remain strong even if customers in stock markets dwindle.

Many analysts are fans of stocks and describe their beloved brands as strong and reliable. They also cite a track record of successful turnarounds at Reckitt and established positions in emerging markets and high margins at Unilever. Both companies also pay good dividends.

Sparkle: Unilever, which makes Cif a household cleaner, has loyal customers who are willing to pay higher prices

But there's a big question mark for both companies in the coming years as we all grapple with mounting bills. Of course, with prices rising, it's tempting to buy a branded clean kitchen cleaner instead of a more expensive bottle like Cif. Indeed, it will be fascinating to see how buyers react to Marmite, which is made by Unilever and costs 11% more.

Is Reckitt, the maker of Durex, the protection your wallet needs as inflation continues to hit us, or will he, as the maker of Gaviscon, digest your investments?

unilever

First, consider Unilever, the former Anglo-Dutch conglomerate that became British in 2020 as part of a simplification of its shareholder structure.

The company may have been streamlined from a business standpoint, but it remains a global tangle of 400 brands, with Dove, Lifebuoy and Knorr being the strongest.

And juggling responsibilities has not been easy for management. The company's share price has lagged the market since 2017, when it turned down an offer from competitor Kraft.

In January, Unilever made its own bid for the consumer business of pharmaceutical giant GlaxoSmithKline. This failed and the Sensodyne, Aquafresh and Chapstick businesses have now been spun off from GSK as Haleon.

Veteran investor Terry Smith made no bones about the episode, describing it as a "near-death experience" for Unilever and suggesting management should step down.

Smith, a major shareholder in Unilever through investment fund Fundsmith Equity, isn't the only investor whose management should be concerned. In May, activist shareholder Nelson Peltz joined the board, hinting that he would cease operations and possibly even force a dissolution like he has done at other companies.

As a result, the company had a lot to prove with last week's first half-year results. Up to a point he has delivered. The company reported a 1.6% decline in sales volume, but dollar-denominated sales rose 8% and analysts raised their full-year earnings guidance.

All of this is encouraging, but there's a bugbear on the horizon that can't be mollified with a magnum or two. Yes, inflation, which has already boosted Unilever company prices by 11%.

Chief Operating Officer Graeme Pitkethly says consumers are happy to pay these higher prices right now, but there will certainly come a time when people will trade their Ben & Jerry's for Tesco Value vanilla. At that point, Unilever's sales volume will continue to decline.

reckit

At first glance, Reckitt looks like a smaller Unilever. It is a brand-based company whose main brands include Dettol, Finish and Durex.

However, shareholders have been fooled with a 20% rise in the company's stock price over the past 12 months.

Reckitt is a story of change. It struggled to digest formula brand Mead Johnson in 2017 and has since changed management and funded a reorganization. Last week's results have been decent, although the Covid comparison makes it difficult to see the bigger picture. People are no longer spraying Dettol every five minutes, but are buying more Nurofen and Strepsils as the virus is rampant.

The company took advantage of an infant formula shortage in the United States caused by the closure of a rival Abbott's factory. It now feeds about half of America's babies, a fact that partially explains the strength of its numbers.

However, analysts were encouraged that results were consistently strong, with CitiBank's Cedric Besnard saying numbers in all categories "support the thesis that the company has finally turned around."

The company faces the same inflationary hurdles as its competitor, but in a slightly different way. Reckitt CFO Jeff Carr is focused on driving savings across the company's brands and believes there's more left in the company's toothpaste tube in terms of efficiency.

Although Carr said it was committed to "responsible" pricing, the company increased prices by 9.7% in the three months ended June.

MIDAS RULING: It's convenient for investors that Reckitt and Unilever are reporting in the same week. These two companies in the same industry show how management intervention can make a difference when companies are hit by the same economic storms.

For now, Reckitt appears to be a better choice as it is well run and streamlined and strives to develop new brands to meet customer demand (laundry sanitizer is the latest innovation as the energy crisis causes people to buy their clothes at lower washing temperatures).

Unilever continues to expand and is uncertain. She's already increased prices by 11%, raising questions about how much her customers will be carrying.

However, we also need to look at company valuations. With a yield of 4.3% and a price-to-earnings multiple of 18 times forward 2022 earnings, Unilever is trading at a 20% discount to peers in the UK and abroad. Shares fell 3.6% over 12 months to £40.03.

Reckitt shares are up more than 18% over the same period to £66.46. The estimated dividend yield for this year is 2.7% and forward price-to-earnings per share is 20 times 2022 earnings, meaning it's the most expensive pick.

Reckitt is a solid company, but with the possibility of Peltz stepping in to stock up on Unilever's inventory and a loyal customer base willing to pay higher prices, it might be worth opting for new Unilever ice cream tomorrow , instead of today for Jam Reckitt. .

Buy Unilever  

Listed on: Major Market Ticker: ULVR Contact: unilever.com or 020 7822 5252

WAIT Reckitt

Traded on: Main Market Ticker: RKT Contact: reckitt.com or (0)1753 506 800

Try Adblock (Why?)

Aucun commentaire:

Enregistrer un commentaire