MARKET REPORT: Unilever boosted by emerging markets as sales hit sweet spot

| July 31, 2012 | 0 Comments

By
Roger Baird

16:25 EST, 30 July 2012

|

16:25 EST, 30 July 2012

At a time when the tough economic environment continues to hit consumer goods companies particularly hard, the market remains impressed by Unilever.

The maker of Lux soap and Ben Jerry’s ice cream hit a ten-year high when it posted forecast-beating first-half results last Thursday and has continued to make gains over the two subsequent sessions, closing up 14p at 2274p.

The firm, which also makes Knorr and Sunsilk, said its core sales grew 5.8 per cent as strong growth in emerging markets offset weaker European regions. Analysts had forecast growth of 4.8 per cent.

MARKET REPORT: Unilever boosted by emerging markets as sales hit sweet spot

This led the firm to post interim
pre-tax profits up 1 per cent to £2.6billion, while turnover at constant rates
grew 9.3 per cent to £91.9billion.

By contrast rivals such as America’s
Procter Gamble and France’s Danone both cut earnings forecast last
month. PG blamed its lack of new products, while Danone said
Spanish shoppers were switching to cheaper yoghurts.

Unilever, led by chief executive Paul
Polman, said the business is seeing good growth in emerging markets
such as India, Turkey and Brazil, where it launched the Magnum choc ice
this year.

The market looks at Unilever’s
revenues from emerging markets, with a fast-growing middle-class who are
able to afford branded goods as its real strength.

WH Ireland analyst Luke Tribe said 50
per cent of Unilever’s revenues come from developing markets and calls
this the firm’s ‘engine for underlying sales growth.’

But Unilever will not have it all its
own way. Its task is to keep putting on sales around the world, to make
up for a struggling European market.
Over the last six months the firm’s sales in Europe grew just 1.1 per cent.
And over the second quarter of the year, Unilever said sales in Europe
actually fell 2.2 per cent due to ‘sluggish economies and fragile
consumer confidence.’

Polman said he expects trading around the world to be tough and show ‘continued volatility.’

However, WH Ireland places great store in Unilever’s ‘survivorship credential in uncertain markets.’  

The blue chip index FTSE 100 rose 66
points to 5693.63 with banks leading the way, propelled by hopes that
European leaders and the European Central Bank will support the euro by
restarting its bond buying programme.

Over the weekend both German
Chancellor Angela Merkel and French president Francois Hollande talked
about their ‘duty’ to preserve the single currency.

ETX Capital market strategist Ishaq
Siddiqi said: ‘European markets are on track to finish higher for the
fourth consecutive session as hopes for additional stimulus measures by
central banks to be announced this week underpin appetite for risk.’

Banking stocks benefited from bolder
investors. Barclays rose 3.55p to 170.55p, Royal Bank of Scotland was
7.7p higher at 222.2p and Lloyds Banking Group was 0.88p stronger at
31.09p.

In contrast, nervous investors in New
York sent the Dow Jones down 19.11 points to 13056.55 in early trading
as they waited to see what measures for growth the Federal Reserve might
take later this week.    

Back in London, GlaxoSmithKline rose
22p to 1465p after the drug giant said it would give investors in
takeover target Human Genome Sciences more time to sell their shares to
the UK drugs giant. GSK, which is offering £2.3billion for its US rival,
said it will give HGS shareholders four more days to consider its
offer.      

Pearson, the owner of the Financial
Times, was once again the biggest single faller on the FTSE 100 as the
lacklustre reaction to its interim results, published on Friday,
continued. The stock lost a further 40p to 1190p.

Mid-cap trading software provider
Fidessa was the biggest faller on the FTSE 250. The firm tumbled 95p to
1405p after it said it expected its margins to fall as what it called
‘challenges in financial markets’ linger.

Despite tough market conditions a
number of companies traded at record highs. According to Killick
Co partner Paul Kavanagh these include Compass up 11.5 to 701p, Severn
Trent rose 24p to 1743p, Whitbread lifted 29p to 2165p, Bunzl gained 11p
at 1124p, SABMiller was 6p higher at 2786p and Diageo was 22.5p
stronger at 1732p.

‘These are a diverse group of
companies, some of them are international others are UK focused,’ said
Kavanagh. ‘There is no magic bullet which explains why this group is
doing well except to say that they are all well managed, well financed
and producing lots of cash. Despite all the doom and gloom there are
good companies out there.’

- Shares in
London Mining rose sharply after the African-focused miner said
investor BlackRock World Mining would pay it £70.1million in return for 2
per cent of its royalties on iron ore sales from its Marampa mine in
Sierra Leone. London Mining said it would use the cash to further boost
production at the site, which is currently due to hit 5million tons of
iron ore a year in 2013. Shares leapt 24.75p to 173.25p.

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