Unilever Bets on Simpler Structure to Boost Returns

Unilever's CEO Fernando Fernandez is betting on a simpler company to boost returns. The British group has been shedding its food assets, focusing instead on beauty, personal care, and home products.

This move aims to close the valuation gap with more focused rivals like Procter & Gamble, L'Oreal, and Coca-Cola. Unilever currently trades at 11.5 times enterprise value to core earnings, compared to 14.8 for P&G, 17.5 for L'Oreal, and 22.7 for Coca-Cola.

Investors have expressed concerns about the company's deal with McCormick, which will leave Unilever with a roughly 10% stake in the combined company. Dan Hanbury, portfolio manager at Ninety One, said that until Unilever shows evidence of turning its business around, it will remain on a low multiple.

The market is wary of 'false dawns' from corporate turnarounds, and Unilever needs to deliver three or four quarters of strong volume growth to win over doubters. Investors favor category leaders that can focus investment and marketing on a narrower set of products.