Unilever Stock Purchase (LON:ULVR) – A Fast Moving Consumer Goods Giant

Update, October 2026: I wrote this article in April 2021. Unilever has changed a lot since then, so read the original analysis below with these changes in mind:

• Ice cream demerged: in December 2025, Unilever spun off its ice cream business as The Magnum Ice Cream Company, listed in Amsterdam, London and New York. Magnum, Ben & Jerry’s, Cornetto and Wall’s are no longer Unilever brands. Shareholders received one Magnum share for every five Unilever shares, and Unilever then consolidated its shares (8 new shares for every 9 old ones).
• Foods to McCormick: on 31 March 2026, Unilever agreed to combine most of its foods business, including Knorr and Hellmann’s, with McCormick. Unilever shareholders will own 55.1% of the combined company and Unilever will receive $15.7 billion in cash. The deal is expected to close by mid-2027. Foods in India, Nepal and Portugal stay with Unilever.
• New focus: after these deals, Unilever will be a home, beauty, personal care and wellbeing company.
• New CEO: Fernando Fernandez replaced Hein Schumacher as chief executive in 2025.

Because of the demerger and share consolidation, today’s Unilever share price can’t be compared directly with the prices below.

This article is my personal view and not a recommendation to buy any share. When investing, your capital is at risk. Past performance doesn’t guarantee future returns.

Unilever: the power of brands

Step into your kitchen, bathroom or cleaning cupboard and you’ll almost certainly find a Unilever product. Dove, Domestos, Persil, Surf, Lynx, Sure, TRESemmé, Vaseline: the list goes on. Unilever sells its brands in around 190 countries.

These brands are everywhere, yet each is distinct. That matters, because a strong brand can charge more than a generic product. It gives the company pricing power.

Before we look at the case for investing in companies with strong brands, we need to understand what a brand is.

The history of brands

Go back to the early 1800s and life was local. Most people rarely travelled far from where they were born. They ate local produce, wore clothes made by a local seamstress and shoes made by a local cobbler. They personally knew the people who made what they used.

Then came the industrial revolution, and the world got bigger. Railways moved goods further and faster than ever before.

In The Rise and Fall of American Growth, Robert Gordon writes: “As America became more urban and as real incomes rose, the share of food and clothing produced at home declined sharply. New types of processed food were invented… Many American men had their first experience of canned food as Union soldiers during the Civil War.”

This was a huge breakthrough, but it created a problem. For the first time, consumers were cut off from the people who made their goods.

Before, a bad product was your own fault or something you could take up face to face with a local merchant. But canned food came from dozens of regional suppliers that customers couldn’t identify. Without accountability, quality was often terrible. In 1869, Harper’s Weekly wrote: “The city people are in constant danger of buying unwholesome [canned meat]; the dealers are unscrupulous, and the public uneducated.” No one knew who to trust.

That’s where brands came in. The William Underwood Company made a meat spread called Deviled Ham. People loved it, but canned meat had a reputation for inconsistency: sometimes rotten, sometimes watery, no two cans alike.

Underwood fixed this with a red devil logo customers could recognise. In 1870, it registered the logo as a trademark. It’s often described as the oldest food trademark still in use in the US.

The logo recreated the trust that face-to-face trade had provided for most of history. Wherever they were, customers who saw the devil knew they were getting a specific product from a specific company, made to specific standards.

A brand doesn’t necessarily mean a product is the best. It means customers know exactly what to expect. Underwood didn’t have the best product, but it built a powerful brand through consistency.

The big insight is that consumers hate surprises more than they enjoy the chance of perfection. The best companies combine quality with consistency.

Julia Child, the famous chef and TV presenter, once asked her host to take her to McDonald’s. The host was horrified. Child explained: “I like McDonald’s. It’s always consistent.” You know what to expect from every bottle of Coca-Cola or every cup of coffee from Costa.

Unilever’s success has come from its stable of strong brands. It doesn’t always have the best product in a category, but its brands often make it number one or two.

Take ice cream, which was still part of Unilever when I wrote this. On a hot day, you open a shop freezer and see a Cornetto for £2 and an unbranded cone for £1.60. You know what a Cornetto tastes like. The other one is a gamble. Most people pay the extra 40p for the brand they know. That wins the sale and, because the brand commands a higher price, a wider profit margin too.

As an investor, it’s this pricing power that shows whether a brand is one consumers will pay for.

Pricing power

As an investor, I look for companies with an economic moat: a lasting competitive advantage that protects their profits. One leading sign of a moat is pricing power.

Pricing power is the ability to raise prices faster than inflation without losing sales or customers. Very few businesses can do it. Those that can earn higher profits, which they can reinvest or pay out as dividends. Companies without pricing power see their margins squeezed when costs rise.

Warren Buffett, who popularised the idea of the economic moat, put it this way in a 2010 interview with the Financial Crisis Inquiry Commission:

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

The power of brands

If a company has a strong brand, consumers are willing to pay more for it than for a similar product. This pricing power has helped consumer staples companies deliver strong long-term returns.

Consumer staples are products people use every day and are unwilling to cut from their budgets, such as food, drinks, toiletries and household goods. Their big advantage is brand loyalty.

Their products are protected by trademarks, so only Coca-Cola can sell Coca-Cola and only Mondelez can sell Cadbury Dairy Milk. That lets them charge more than they otherwise could. The extra cash pays for advertising, marketing and product development, which strengthens the brand further. Most people don’t reach for the knock-off chocolate bar. They want the real thing, and the price difference is small enough not to matter on each purchase. The result is high returns on capital, backed by real cash flow.

The evidence is strong. In his book The Future for Investors, Professor Jeremy Siegel looked at the original companies in the S&P 500 from 1957 to 2003. Many of the best performers were consumer staples companies, and the best of all was Philip Morris.

Few fund managers focus on this, Nick Train and Terry Smith being notable exceptions. At a Fundsmith annual meeting, Terry Smith showed a slide on what price you could have paid in 1973 for various consumer staples companies and still matched the market’s return. For L’Oréal, it was 281 times earnings. For Altria, 241 times. For Colgate, 126 times. For Coca-Cola, 63 times.

This suggests two things. These businesses have excellent economics: strong brands, repeat sales, resilience and low debt. And the market has often undervalued them.

Past returns are encouraging, but investors care about the future. The key question for Unilever is whether its brands, and brands in general, will stay strong.

Have brands become less important?

Much has been written about the death of brands. Shoppers are more willing to try new products and supermarket own-brands have gained ground, particularly in developed markets. Big brand owners have lost market share, and their margins have come under pressure.

The internet plays a big part. As a child, whenever my family visited another city, we’d end up at McDonald’s because we knew what we’d get. Today, thanks to Google reviews and countless blogs, I’m happy to try small local restaurants.

The same applies to Unilever’s markets. Reviews make us more willing to try new soaps and detergents. E-commerce also gives smaller brands a route to customers that used to depend on supermarket shelf space, which the big players could dominate.

Which brands are still relevant?

That’s why it’s important to choose the right companies in this sector. Look for:

• Categories where own-brands are weaker: health, beauty and personal care. I’ve always believed that for products you put on your body, people prefer brands, while for products like bleach, they’re happy to buy cheaper own-brands. After its recent deals, Unilever is focused almost entirely on these stronger categories.
• A willingness to adapt: in 2020, Unilever unified its dual Anglo-Dutch structure, which dated back to 1929. Since then, it has separated ice cream and agreed to combine its foods business with McCormick.
• A strong position in emerging markets: in many emerging markets, consumers trust brands more than unbranded goods. Unilever makes a large share of its sales in emerging markets and is deeply embedded in countries such as India and Indonesia. Its distribution networks there are very hard for competitors to copy.
• Brands that win online: on Amazon, how often do you scroll past the first page? Search for deodorant and you’ll find Sure and Dove. Search for washing powder and you’ll find Persil and Surf. Some Unilever brands have become the name of the product itself. Nobody searches for “petroleum jelly”; they search for Vaseline.

Why not invest directly in emerging market companies? Emerging markets have strong demographics and a growing middle class. But I prefer quality businesses listed in Western Europe or the US. It reduces risks such as weak rule of law, political instability and capital controls. I’d rather get emerging market exposure through multinationals like Unilever.

How resilient was Unilever in 2020?

A good test of a company’s products is how they hold up in a downturn. 2020 was that test.

COVID-19 was a net negative for Unilever. Cleaning products and soap did well, but beauty and personal care sales fell as people went out less and shops closed. In foods, in-home sales rose but out-of-home sales fell.

In 2020, on an adjusted basis, turnover fell 2.4% and earnings per share fell 2.4%, mainly because of currency movements. Excluding currency, turnover rose 1.9% and earnings per share rose 4.1%. Free cash flow rose by €1.5 billion, net debt was 1.8 times EBITDA (below its 2x target) and return on invested capital was 18%.

Unilever passed the resilience test. Whatever the economy is doing, people still need to brush their teeth, wash their clothes and shower.

The next test was inflation. In 2021, Unilever expected mid to high single-digit commodity cost inflation. Inflation hurts most companies, but it hurts those without pricing power more. Companies with strong brands can pass on more of their rising costs.

Unilever’s valuation in 2021

In April 2021, Unilever shares had fallen more than 10% since the start of the year and more than 20% from their 2020 high. Reasons included rising bond yields, the threat of inflation and a move by investors towards cyclical and value shares.

At 3,955p, Unilever traded on 18.2 times 2020 earnings, with a free cash flow yield of just over 5% by my calculation and a dividend yield of 3.8%. Other consumer staples companies, such as Nestlé, Colgate, Procter & Gamble, PepsiCo and Mondelez, traded in the mid to high 20s.

In his February 2021 monthly report, Nick Train valued Unilever’s three divisions separately and found the business should be worth close to £127 billion, against a market value of about £100 billion.

Part of Unilever’s appeal was its majority stake in Hindustan Unilever, India’s biggest consumer goods company, which grew strongly in the years before 2021.

I agreed with Nick Train. A high-quality business, earning high returns for long periods thanks to its brands and distribution, was trading at under 20 times earnings. Its cash flows were also predictable, which makes it easier to estimate what the business is worth.

Why might Unilever be mispriced?

First, it’s listed in London, and London-listed shares have traded at a discount to global peers for years.

Second, quality companies are often mispriced because of short-termism. Investors today have more information and computing power than ever. Yet the market as a whole seems to have become more short-term and, at times, more irrational. Just look at the meme stocks of early 2021.

Cheap shares with low P/E ratios are now quickly picked up by computer models, so traditional value investing has become harder. But when a whole sector falls out of fashion, its shares tend to fall together. That gives patient investors a chance to buy quality companies when their sector is unloved.

Philip Morris, the best performer in Siegel’s study, never looked exciting from one quarter to the next. Companies like this are the tortoises of the stock market. They keep producing cash for their owners while everyone watches the hare.

My purchase of Unilever shares

I first bought Unilever shares in early 2016 at under £30, and added more in December 2016 at £32. The price later rose to about £50, and I kicked myself for not buying more. I told myself that if the price ever came close to my estimate of fair value, I’d buy.

That chance came from December 2020, as investors rotated from quality growth shares into cyclical and value shares. I started buying through my broker’s monthly investment service, which cost £1.50 a trade, at around £43. As the price fell, I bought more with larger one-off purchases, which cost £10 a trade. Below £40, and especially in the £37 to £38 range, Unilever looked like a bargain to me.

In total, over four months I bought 214 shares at an average of around £38.50, a total of more than £8,000. That was 75% of all the new money I invested that tax year.

Great companies are rarely cheap. If they were, every investor would want to buy them and nobody would want to sell. I plan to be patient and let the share price follow the value the business creates over time.

Disclaimer: This article reflects the author’s personal opinion and holdings at the time of writing. It is not a recommendation to buy or sell any share. The value of investments can go down as well as up.