Implementing GAP 2030 Will Strengthen Brand Presence In India

Key Takeaways

• Strategic GAP 2030 aims to enhance brand growth in key markets, boosting market share and premium offerings for revenue increase.
  
• Productivity program and divestment plans are set to streamline operations, improve net margins, and focus on core operations for enhanced earnings.
  
• The separation of Unilever's Ice Cream business and challenges in China and Latin America, alongside commodity inflation, may disrupt operations and compress margins.

Catalysts

Operates as a fast-moving consumer goods company in the Asia Pacific, Africa, the Americas, and Europe.

• The implementation of the Growth Action Plan (GAP) 2030 aims to enhance brand superiority and accelerate growth in high-potential markets like India, focused on key strategic pillars. This is likely to positively impact revenue through increased market share and premium product offerings.
  
• The continued wide-ranging productivity program, which is ahead of schedule in reducing full-time roles, is expected to deliver significant cost savings. This program aims to reduce costs by €800 million over three years, improving net margins.
  
• The separation of the Ice Cream business by the end of 2025 is anticipated to streamline Unilever's portfolio, allowing a sharper focus on core operations and potentially enhancing earnings by reducing operational dis-synergies.
  
• Increased investment in brand and marketing, especially for the top 30 brands, suggests a strategic push to maintain competitive positioning and drive sales growth. This concentrated investment is likely to boost revenue by strengthening consumer engagement and brand loyalty.
  
• Significant innovations in categories such as Beauty & Wellbeing and Personal Care, alongside the expansion of premium products like Liquid I.V., are expected to support volume and sales growth, positively affecting revenue and market share over the coming years.

Unilever Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Unilever's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 12.2% in 3 years time.
• Analysts expect earnings to reach €8.2 billion (and earnings per share of €3.26) by about April 2028, up from €5.7 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €9.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.7x on those 2028 earnings, down from 24.0x today. This future PE is greater than the current PE for the US Personal Products industry at 20.8x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Unilever Future Earnings Per Share Growth

Risks

• The impending separation of Unilever's Ice Cream business presents risks of operational disruption and may affect overall revenue and net margins if the transition isn't managed effectively.
  
• Challenges in the Chinese market, including market weakness and intense competition, could impede sales growth and affect the revenue forecast.
  
• Increased volatility in Latin American currencies may necessitate significant pricing corrections, potentially impacting volume growth and reducing revenue consistency across regions.
  
• Elevated input cost inflation in commodities like cocoa and dairy, predominantly affecting Ice Cream, may compress gross margins if increased costs cannot be fully passed onto consumers.
  
• Sluggish start to 2025 anticipated due to economic conditions and pricing lags may impact revenue growth and earnings going forward.

Valuation

• The analysts have a consensus price target of £50.081 for Unilever based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £58.62, and the most bearish reporting a price target of just £37.48.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €67.2 billion, earnings will come to €8.2 billion, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 7.7%.
• Given the current share price of £47.49, the analyst price target of £50.08 is 5.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.