The breadth of Unilever's (ULVR) expansive distribution network combined with its solid brand mix – which supports the firm's wide moat – was evident in the firm's first-quarter trading update. After bumping up our fiscal 2015 sales outlook to nearly 8% growth from 1.4% previously to account for the benefit from favourable foreign currencies as well as recalibrating our cost of capital assumptions, we are raising our fair value estimate to £30.61 from £24.93.
We view Unilever as fairly valued, but would look to any retreat in the stock price due to concerns about slowing global consumer spending or competitive pressures as an opportunity to build a position in this wide-moat name.
For the quarter, organic sales rose 2.8%, which was driven by nearly 2% higher prices and a 1% uptick in volume. But unlike last year, when unfavourable foreign exchange movements hampered the top line to the tune of 9%, FX was a pronounced positive, at almost 11%. Emerging markets, which make up nearly 60% of sales, posted sales growth just north of 5% on 4% higher prices and 1% increased volume, and despite the contraction from a year ago, when sales popped about 7%, management highlighted that India and South Africa showed signs of improvement and China is stabilizing.
From our vantage point, the firm's tenure in these regions, which dates back 100 years in some instances, subsequent grasp of consumer trends, and spending behind product innovation and marketing ensure the company is well positioned when growth resumes.
Looking across Unilever's categories, growth was broad-based, with each segment posting 2%-3% underlying sales growth. We note, however, that the food business, up nearly 3%, benefited from an earlier Easter, and as such, we hesitate to view this quarter's performance as sustainable.
