Tuesday, 21 January 2014

Unilever and SAB Miller - similar currency woes but different conclusions

Two updates from London-listed global staples today.  The last time I looked at Unilever this chart caught my attention as it clearly showed the impact of a slowdown in the emerging markets on the company's growth profile.

 There is not, unfortunately, an akin update but this chart showing FY13 4.3% growth is useful as this statistic was the same as the 9 month average shown above.  So trading is not getting worse - and pricing remains positive. 
The other reason why the Unilever shares are up today is that the above is dampened by currency - underlying operational performance up more than 7%.  Not too bad at all for a staple.  (Admittedly to look at it another way, currency losses wiped out the operational performance). 

Unsurprisingly Unilever shares are up today.  Previously I had talked about a £22 level to buy them, but this never happened.  With the share at x18/19 earnings I am happy to wait - undoubtedly dividend focused investors will find the 4% yield suitable compensation. 

The other staple to update their shareholders today (this time with just a trading statement) was the global beverages company SAB Miller which I last looked at in depth at this link here

Today's update showed 2% organic constant currency growth at both a net producer revenue and volume level.  Inevitably though, as the trading statement noted, there were geographical differences (with my emphasis added) plus some currency impacts:

Group NPR growth on an organic, constant currency basis in the third quarter was driven by the mid to high single digit growth recorded in Latin America, Africa, Asia Pacific and South Africa. Trading conditions continued to be more challenging in North America and Europe, with group NPR declining in Europe in the quarter. On a reported basis, financial results were adversely impacted by the depreciation of key currencies against the US dollar, notably the South African rand, Australian dollar, Peruvian Nuevo sol and Colombian peso. The group’s underlying financial performance is in line with expectations.

As a trading statement, this was not a full set of numbers but given the solid comments above I am a little surprised to see the share down just over a per cent at the time of writing.  With the share trading below £31 it is - as per my previous analysis of the company - trading in an interesting price zone.  I will therefore buy a starter position today.  As a noted before (at a slightly higher share price):

'Well at an EV of just under US$100bn and a bit of extrapolation on the earnings front from the H1 number released today the shares trade at an EV/ebit in the x14s.  That's not super cheap, although I have seen worse recently in the consumer space.  The yield of 2.2% is sustainable (net debt:ebitda ratio in the low x2s) and - even at a price tag in excess of US$100bn - speculative appeal is still apparent'. 

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