The Guide to Investing in Stocks and Shares

Unilever

Dan Tebbutt - A Shareworld Contributor

A common piece of advice is to "invest in what you know". If you're a fan of a particular product or service, then you may have a particular insight into the future success (or otherwise) of the company that produces it. By that rationale, most people have an insight into Unilever. Here's a small selection of its brands:

• Food
  • Bertolli
  • Hellmann's
  • Knorr
  • Lipton
  • Slim-Fast
• Personal care
  • Dove
  • Lynx
  • Vaseline
• Home
  • Cif
  • Comfort
  • Domestos
  • Surf.

The list goes on.

I think we can take it as read that Unilever has a lot of great brands. But does that make it a great company? And (not the same thing) does it make a good investment?

The key numbers

Market cap	€61.2bn
Revenue	€44.2bn
Net profit	€4.2bn
Tangible Book Value	€(3.5)bn
Net debt	€7.2bn
P/E	14.6
Yield	3.9%

Looking back at Unilever's history, their turnover has gone pretty much nowhere over the last 10 years. But that's not to say that nothing's changed. Over 10 years they have:

• Reduced net debt by €20bn.
• Reduced their number of employees by 36%.
• Repositioned their business so that 40% of revenue comes from Asia and Africa.
• Paid out almost €18bn in dividends.

I'd like to see Unilever use their prodigious cash flow to:

• Continue paying dividends
• Buy back shares (at a reasonable price)
• Make small acquisitions that are easily digested
• Develop new brands

If I thought they'd go down this route, then I might be interested - it looks a rock-solid company with a well-covered yield and a pretty conservative balance sheet.

But...

Unilever don't have a lot of debt right now. Their stated ambition is to double their size. This suggests to me that they are on the lookout for one or more major acquisitions. I think management are itching to do something big and impressive. And I don't want to be on the side of the bidder in a massive takeover battle.