Breakingviews - Unilever boss needs to channel his inner activist

A box of Closeup toothpaste is seen on the production line at the Unilever factory in Lagos, Nigeria January 18, 2018.

LONDON (Reuters Breakingviews) - Consumer giant Unilever is creaking. The $161 billion maker of Bovril meat paste warned revenue in 2019 will grow below its 3%-5% target. Lucky that CEO Alan Jope doesn’t have the likes of Dan Loeb’s Third Point snapping at him, like Swiss rival Nestlé. But channelling the spirit of an activist would help avoid any more misses.

Jope blames the economic slowdown in south Asia, one of Unilever’s largest markets, and trading conditions in west Africa for the miss. But neither of these issues are new, making it hard to blame them entirely for the sudden revision to 2019 targets just 14 days before the end of the year. And even the revised target has been flattered by temporary factors: a change in the way Unilever accounts for hyperinflation added 30 basis points to sales growth in the first half, for example.

Unilever’s problems run deeper than temporary slowdowns. Consumer goods groups are facing stiff competition from smaller, nimbler players and changing consumer tastes. And the Anglo-Dutch company’s sprawling network of local brands doesn’t seem to benefit much from being part of a larger entity, as it grows in line with or slower than the market. The activist remedy, as adopted by Nestlé, is to sell the weaker or smaller brands, and focus on strengthening what’s left. Jope’s predecessor, Paul Polman, took some steps in this direction when he sold off the spreads business in 2017.

To be fair to Jope, he has only been in the job for less than a year. And he is open to disposals, telling investors as recently as November that he was evaluating all Unilever’s brands, and that there were no “sacred cows”. Yet he could outline what he plans to sell. Liberum analysts say the food division has seven big brands, including Ben and Jerry’s ice cream and soup maker Knorr, which make up 70% of the business. Yet three of them – Knorr, Lipton tea and Hellmann’s sauces – grow in the low single-digit rate at best, Liberum reckons, making them good disposal candidates.

Investors currently value Unilever at 20 times forward earnings, a discount to the 24 times at which Nestlé trades, according to Refinitiv data and Breakingviews calculations. That suggests there’s plenty of upside if Jope is willing to take bold action.


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