Unilever plans simplification of capital structure

The FMCG giant Unilever (NYSE: UN) reported higher-than-expected fiscal 2017 half-yearly results in late July. While the fiscal 2017 half-yearly underlying sales grew 3% on y-o-y basis, the turnover increased 5.5%, compared with the first-half of 2016. The market rewarded the impressive results by pushing the stock price of Unilever to a new yearly high of $60.90 last week. We expect the bullishness to continue due to reasons presented below.

The London-based company reported 1H17 revenues of €27.725 billion, up 5.5% from €26.283 billion in 1H16. During the six-month period ended June 2017, the net profit increased to €3.32 billion, from €2.71 billion last year.

Higher price realization in emerging markets enabled the company to report an increase in sales. However, volumes remained flat in emerging markets. Segment wise, refreshment business, which includes ice cream and tea business, mainly contributed to a growth in sales. During 1H 2017, the gross margin increased by 40 basis points to 43.1%.

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Following the strong half-yearly results, the company stated that it expects a sales growth of between 3% and 5% in 2017. Unilever anticipates the growth to be driven by its innovative plans and an increase in brand and marketing investment. Furthermore, the company has saved €1 billion from its Connected 4 Growth (C4G) program announced last year. Unilever hopes to achieve a savings of €6 billion and underlying operating profit margin of 20% by 2020.

The company also raised its dividend by 11% to 2.93%. Unilever has never missed a dividend payout in the past 13 years. The company has also repurchased €1.40 billion worth stock under its repurchase program and is on track to complete the €5 billion program by the end of 2017.

The shareholders of the company insisted Unilever to review its business structure after it rejected a $143 billion buyout bid made by Kraft Heinz Co., in February 2017. The maker of Lipton tea and Dove soap, then undertook a business review to consolidate its position, amid poor growth and increasing competition in the FMCG industry.

Following the review, Unilever decided to simplify its capital structure. In this regard, the company is now considering a repurchase of $520 million worth preferential shares from the Dutch institutional investors. The likely purchase would benefit the corporate governance of the company due to its listing in both Amsterdam and London exchange.

According to the news report, the company has agreed to buy back the 7% and 6% preference shares in Unilever N.V., held by ASR Netherlands – an insurer and NN Investment Partners. Unilever is expected to launch a public offering for the outstanding preference shares.

The offering is anticipated in Q3 2017, with an aim to complete in the fourth-quarter of 2017. Unilever intends to delist from the Euronext Amsterdam exchange, following the completion of the acquisition of all the preference shares. Thus, simplified capital structure, upwardly revised sales growth and effective cost cutting program is expected to keep the stock bullish.

Technically, the price chart indicates firm support for the stock at 50.60. The stock is also moving upwards without violating the trend line support. Furthermore, the stochastic RSI is in the oversold region. Thus, we can expect the uptrend to continue.

To benefit from the current rally, we wish to purchase a high or above option from any of the honest binary brokers listed here. The option should be active until September 26th . Likewise, the stock should be trading near $60 in the NYSE.

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