Unilever Ditches Food Assets for Beauty and Personal Care Focus

Consumer goods giant Unilever is undergoing a major transformation by shedding its food assets and focusing on beauty, personal care, and home products to close the valuation gap with more focused rivals. The company's trade at an enterprise value multiple of 11.5 times core earnings, compared to 14.8 for Procter & Gamble (P&G), 17.5 for L'Oreal, and 22.7 for Coca-Cola.

The challenge for Unilever is convincing investors that a simpler company can deliver higher returns. The company's deal in March to merge its food business with U.S. spice maker McCormick will leave Unilever with an almost 10% stake in the combined company, and its shareholders with a roughly 55% stake.

Investors are wary of 'false dawns' from corporate turnarounds, according to Dan Hanbury, a portfolio manager at Ninety One. He said that Unilever needs three or four quarters of strong volume growth to win over doubters.