25th Jul 2023 10:58
(Alliance News) - Unilever PLC was the top blue-chip performer on Tuesday morning after it reported double-digit interim profit growth, while volumes stayed steady from the prior year.
Shares in London-based consumer goods firm were up 4.8% at 4,214.00 pence each in London on Tuesday morning.
However, Danni Hewson, head of financial analysts at AJ Bell, warned that if traders were to dip a little deeper into the interim figures, there are "several reasons not to get carried away."
Unilever reported that pretax profit jumped 21% to GBP5.27 billion in the first half of 2023, from GBP4.36 billion a year before.
Turnover rose 2.7% year-on-year to GBP30.43 billion, compared to GBP29.62 billion. This included a currency headwind of 3.2%, as well as a 2.7% headwind from disposals net of acquisitions.
A strong performance in Beauty & Wellbeing and Personal Care, which rose 8.6% and 7.3%, helped to offset a 7.1% decline in Nutrition sales.
On an underlying basis, sales grew 9.1%, with a 9.4% growth in price but a 0.2% slip in volumes.
AJ Bell's Hewson lamented that Unilever's sales growth has come "entirely" from putting up prices, not shifting more units of products. She said that the sign of a "good business" is one that can grow prices and volumes, something Unilever failed to achieve in both the first and second quarters of its financial year.
Looking ahead, Unilever expects another year of "strong" underlying sales growth of above 5% in 2023, which is ahead of its multi-year range. It's also ahead of its April guidance for the upper end of a 3% to 5% range.
Underlying price growth is expected to continue moderating over the year, Unilever added.
It also expects around EUR2 billion in net material inflation in 2023, with EUR400 million to come in the second half. Underlying operating margin for the year is expected to see a "modest" improvement, thanks to a higher gross margin and increased brand investment.
Matt Britzman, equity analyst at Hargreaves Lansdown, said margin expansion in the first half was "good to see", especially given the "hefty impact of cost inflation and the continued investment in marketing".
"Things should get easier from here as costs are expected to ease over the second half. That'll give room to take the foot off the pedal when it comes to price hikes - good news for consumers, and it should release some pressure on volumes," he said.
Richard Hunter, head of markets at interactive investor, was equally upbeat on Unilever.
"There have been concerns that an increasingly cost-conscious consumer would switch to the cheaper, own-brand products of rivals, but this appears only to be happening at the margins," he said.
"In normal circumstances, significant price rises would be accompanied by large declines in volumes as customers move elsewhere. For Unilever, however, with its suite of household names, this has simply not been the case."
Hunter cautioned, however, that Unilever could be held back by its reputation as a company with limited high growth prospects, being seen as a "solid defensive play."
"This perception is one which the company needs to change and today's reaction to the update could just mark a turning point. With Unilever's valuation also being slightly lower than the historical average, the market consensus of the shares as a hold could well be subject to an upgrade," he concluded."
By Heather Rydings, Alliance News senior economics reporter
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