Why is Unilever’s share price up 23% this year?

I really like the investment case for Unilever (LSE: ULVR). It looks like other investors are doing the same. Unilever’s share price is up 23% this year.

For a long-established firm in a mature industry selling consumer goods, this seems like a big leap.

Why I like the investment case

First, let me explain why I like Unilever’s investment project in general.

It operates in an area that is likely to have high and sustained demand for decades (dare I say, perhaps even centuries) into the coming decades. Shampoos and laundry detergents may not be exciting businesses, but I don’t see them going away anytime soon.

Such markets tend to attract many companies looking to get a piece of the pie. Having spent decades investing in creating premium brands such as Pigeon And Steam tableUnilever helped us stand out from the crowd.

This gives the company pricing power, which in turn helps generate profits. Yes, the company’s earnings have changed in recent years. But they are constantly in the billions of pounds.

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In turn, this helps finance the dividend.

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Returning to Warren Buffett’s Takeover Attempt

Is it a coincidence that Warren Buffett tried to buy Unilever – not just some of its shares, but the whole bunch – in 2017?

I would say no.

Unilever has all the hallmarks of a classic Buffett investment: a large, resilient market, a strong competitive advantage and proven cash generation potential.

Understanding recent price movements

Buffett failed. It was priced at £40 per share. But in subsequent years, Unilever’s share price repeatedly traded below (in fact, significantly below) this price.

So why did it rise this year?

New guidance may be part of the explanation. Plans to cut headcount at a huge multinational offer the prospect of lower costs, potentially leading to higher profits.

The same can be said for the plan to spin off the ice cream business and focus on areas such as personal beauty, with its attractive margins and no need for a complex chilled supply chain. Cornetto factory to corner store.

An investor event last week confirmed that the company is on track to achieve its cost-cutting goals, and the firm also detailed its “Economic Growth Action Plan to 2030” The company said it plans to separate its ice cream business from the rest of the company by the end of next year.

Don’t like the stock price

However, it seems to me that this is quite slow progress. This suggests that buyers at the right price may not have been chomping at the bit (or Ben and Jerry).

Meanwhile, growth plans are good (although they may be difficult to implement in such a mature business), but they are based on current indicators, Unilever’s share price to earnings ratio is already 21.

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I don’t think it’s outrageous, but it’s higher than I’m comfortable with as a potential investor, although I like Unilever’s investment case.

The company faces risks ranging from selling its ice cream business at too low a price only to get rid of it to a weak economy that is reducing demand for branded products. So at the moment I have no plans to add Unilever to my portfolio.