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

I really like the investment case Unilever (LSE: ULVR). So, it seems, do some investors. Unilever’s share price is up 23% this year.

For a long-established blue-chip company in a mature industry that sells everyday staples, that seems like a big leap.

Why I love the investment case

To begin, let me explain why I like Unilever’s overall investment case.

It operates in an area that is likely to see significant and sustained demand for decades (dare I say, maybe even centuries) to come. Shampoo and laundry detergent may not be exciting business areas, but I don’t see them going away anytime soon.

Such markets tend to attract a large number of companies seeking a piece of the pie. By spending decades investing in building leading brands like A dove again MarmiteUnilever has even separated itself from the crowd.

That gives it pricing power, which in the long run helps generate profits. Yes, the company’s profits have improved in recent years. But they have always been in the billions of pounds.

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In turn, that helps pay for benefits.

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Revisiting Warren Buffett’s takeover attempt

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

I would say absolutely.

Unilever has all the hallmarks of a classic Buffett investment: a large, durable market, a strong competitive advantage and a proven ability to generate revenue.

Understanding recent price movements

Buffett failed. That was £40 per share. But, in the years since then, Unilever’s share price has repeatedly traded below (actually, much below) that value.

So, why has it grown this year?

New management could be part of the explanation. Downsizing plans in many countries are undermining the prospect of lower costs, which could increase profit margins.

So it can also have a plan to get out of the ice cream business and focus on areas such as personal beauty, with its attractive margin and no need for a tricky supply chain for frozen products. Cornetto factory to corner store.

An investor event last week confirmed that it is on track to deliver on its cost-cutting targets and the company also detailed “The 2030 Growth Agenda“. The company said it is on track to spin off its ice cream business from other companies by the end of next year.

Dislike the share price

Still, that sounds like slow progress to me. It suggests that buyers at the fair price may have been less female (or at This is Ben & Jerry’s).

At the moment, growth plans are all well and good (although it can be difficult to bring to a mature business) but based at the moment performance, Unilever’s share price to earnings ratio is already 21.

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I don’t think that’s offensive, but it’s higher than I’m comfortable with as an investor, although I like Unilever’s investment case.

The company faces risks, from selling the ice cream business at a very low price just to break even, to a weak economy reducing demand for branded products. So at the moment, I have no plans to add Unilever to my portfolio.