‘Explosive’, ‘dynamic’, and ‘high-octane’ are some of my favourite words. They aren’t ones I’d normally use to describe Unilever (LSE:ULVR) shares – but that might be me being unfair.
Over the last 12 months, the stock is up 13.5%. That’s enough to turn a £10,000 investment into £11,350 – and that’s before we get to the dividend.
Time to wake up
Unilever shares have come to life over the last year or so. But before that, investors had to wait a long time for any meaningful signs of progress.
A year ago, the share price was just below £40. Unfortunately, that’s also where the stock was trading at the start of 2017.
Of course, this doesn’t mean the stock was dead money during that time. Investors who bought in March 2017 and held to the start of March 2024 collected £9.94 per share in dividends.
At just under £40 per share, that’s a return of 24% over seven years. In this context, the stock climbing over 10% in a year is quite a striking shift.
A change of direction
The climbing share price has coincided with a change in the company’s approach. Unilever has been divesting its weaker brands and focusing its investment behind its most successful lines.
It’s fair to say the results have been impressive – in 2024, underlying operating income grew 12.6%. The last time this happened was before 2017.
The epitome of this is Unilever’s decision to divest its ice cream division this year. While Ben & Jerry’s, Magnum, and Wall’s are strong brands, the production costs are ultimately unattractive.
Given the success of the strategy over the last 12 months, it’s something of a surprise to see the company is also looking to divest its CEO. That’s the most recent news.
Momentum
Last month, the news emerged that CEO Hein Schumacher was going to be replaced as Chief Executive by CFO Fernando Fernandez. The reason given by the board is to increase the pace of change.
Exactly what the next stage might be is unclear. But one idea is that it might involve the divesting of Unilever’s food brands, which include Marmite and Pot Noodle.
Growth in this category has been weak for a while. And there’s also speculation the firm might look to add to its existing strengths in beauty and personal care via acquisitions.
This is risky. While the company has had a lot of success recently by cutting its portfolio back, attempting to grow by buying other businesses introduces a danger of overpaying for growth.
Is there more to come?
Investors who bought Unilever shares 12 months ago should probably be very pleased with their returns so far. And I think the stock is still worth considering at today’s prices.
The firm is clearly looking to keep moving forward. And while growing through acquisition is risky, it doesn’t take much imagination to see where a potential target might be found.
It’s not so long ago that Unilever tried to buy Haleon for £50bn. With the company currently having a market cap of £34bn, another look at the stock might not be out of the question. But that’s just me speculating, of course.
This post was originally published on Motley Fool
