Unilever's Strong Third-Quarter Sales Growth Not Likely to Deliver Profit Growth

Unilever reported strong sales growth numbers in its third-quarter trading update, and management provided full-year organic sales growth guidance of above 8%. On this evidence, it appears sales growth will be stronger than we had expected perhaps until the company cycles these high price increases early next year. Unilever does not provide margin data in its third-quarter report, and we suspect operating profit growth will continue to be anemic in the second half of the year, so we are lowering our margin assumptions slightly and reiterating our EUR 50/GBX 4,300/$51 fair value estimate. Our wide moat rating is unchanged. Unilever's total returns have been lackluster in recent years, and we consider the stock to be slightly undervalued. However, we think the investment case depends on potential restructuring and an improvement in financial performance that may occur when the new CEO is put in place; visibility into medium-term strategy is very limited.