In an attempt to simplify its capital structure, Unilever PLC (UL - Free Report) is apparently considering to buyback around $520 million preference shares from Dutch institutional investors. As the consumer products giant is listed both in Amsterdam and London the move is likely to help the company improve corporate governance.
Per sources, Unilever has agreed to buy the 6% and 7% preference shares in Unilever N.V. held by NN Investment Partners and insurer ASR Netherlands. It will launch a public offering for the shares, which will value the outstanding 6% and 7% cumulative preference shares at €450 million ($528 million).
The offering is expected in the third quarter of this year and is likely to be completed in the fourth quarter. After the completion, Unilever intends to acquire the remaining preference shares and to terminate the listings on Euronext Amsterdam.
The need to simplify the company’s capital structure rose when shareholders compelled Unilever to review its business structure after the Anglo-Dutch company rejected a $143 billion takeover bid by Kraft Heinz Co. (KHC - Free Report) in Feb 2017. The maker of Dove products and Ben & Jerry then undertook a business review to strengthen its position in a world of mergers and acquisitions and boost shareholders value amid sluggish growth and increasing competition in the global packaged goods industry.
In this regard, Unilever has divested its underperforming businesses and has reportedly decided to sell its shrinking spreads business, including brands like Flora and Stork butter, in April. Unilever also plans to integrate its food and refreshment businesses into a Netherlands-based unit. Furthermore, the company has announced hike in dividends (by 11% in June), raised cost savings target through its Connected 4 Growth (C4G) program announced last year. The program was undertaken to reduce costs, under which individual expenses are reviewed during each accounting period rather than rolled over. This has generated savings of more than €1 billion in the first half of year 2017, which is a step closer towards its target of €6 billion and a targeted underlying operating margin of 20% by 2020. Moreover, it has set a target for net debt of two times EBITDA, which would mean enough flexibility for acquisitions or returning cash to shareholders.
The company expects these actions to deliver underlying sales growth in the 3–5% range in 2017. The company anticipates accelerating growth in the second half of the year driven by the phasing of the innovation plans and a step-up in brand and marketing investment.
Meanwhile, Unilever continues to struggle with declining volumes in Brazil and a soft economy in Russia. Further, the company is witnessing weakness in the developed markets with little sign of recovery in North America or Europe. Additionally, it has been delivering weak results for the past few quarters due to sluggishness in the emerging markets, which account for about two-thirds of the company’s total revenue. Though the emerging markets offer robust long-term prospects, they are generally volatile.
Stock Price Movement
A glimpse of Unilever’s stock performance shows the company’s shares have moved up 37.8% over the last six months, outperforming the industry’s 14.2% gain. Notably, the industry is part of the top 8% of the Zacks Classified industries (20 out of the 265).
Zacks Rank and Stocks to Consider
Unilever currently carries a Zacks Rank #3 (Hold) and we believe there is still much value left in the stock, which is quite evident from its VGM Score of ‘’A’’.
Investors interested in the same space may consider some better-ranked stocks like Inter Parfums, Inc. (IPAR - Free Report) and Nu Skin Enterprises, Inc. (NUS - Free Report) , both carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inter Parfums has an average positive earnings surprise of 15.6% over the last four quarters. It has a long-term earnings growth rate of 12.3%.
Nu Skin has an average positive earnings surprise of 10.8% % over the last four quarters. It has a long-term earnings growth rate of 8.7%.
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