Morning Note: Market news and an update from Unilever.

Market News

Global currencies rallied against the dollar, while equities and Treasuries advanced as traders viewed Donald Trump’s pick of Scott Bessent for Treasury Secretary as a measured choice for the US economy and financial markets. Bessent indicated he’ll back tariffs and tax cut plans, but investors expect he will prioritise stability, easing some concerns over the impact of a second Trump term. In an interview with the WSJ, Bessent said he will also focus on keeping the dollar as the world’s reserve currency. He outlined plans to cut the budget deficit to 3% of GDP by 2028, spurring growth of 3% and producing an additional 3m barrels of oil a day.

Following a 6% surge last week, the price of gold has fallen back to $2,670 an ounce this morning. The precious metal fell despite a drop in the US dollar. This week, market participants will closely analyse the Federal Reserve’s November meeting minutes, PCE inflation data, and other key US economic indicators to assess the outlook for US interest rates. The 10-year Treasury yields 4.33%.

In Asia this morning, the Hang Seng (-0.1%) and Shanghai Composite (-0.4%) fell back as investor mood continues to sour amid disappointment over Beijing’s stimulus efforts and the prospect of rising geopolitical tensions. China’s PBOC injected $124bn into the banking system via one-year policy loans. The Nikkei 225 rose by 1.3%.

The S&P 500 futures is currently predicting a 0.5% rise at the open this afternoon. The FTSE 100 is trading 0.4% higher at 8,293. ITV is up 5% on news CVC Capital Partners is among companies studying potential bids for all or part of the company. Sterling trades at $1.2550 and €1.1210.

Brent Crude slipped to $74.50 a barrel. Meanwhile, a 45% surge in gas prices this year risks pushing Europe toward an energy crisis. Inventories are declining after frosty temperatures increased heating demand.

In Italy, UniCredit started a bid to take over domestic rival Banco BPM.

Source: Bloomberg

Company News

On Friday afternoon, Unilever hosted an Investor Event at which the company set out its strategic agenda under its Growth Action Plan 2030. The company also confirmed it remains on track to deliver its €800m productivity programme and the separation of the Ice Cream division by the end of 2025. Overall, the update represents a sensible evolution of the strategy set out by the new CEO at the time of his appointment. In response the shares were marked up by 3%.

Unilever is one of the world’s leading suppliers of consumer goods, with annual sales of around €60bn across five business groups: Beauty & Wellbeing (21% of 2023 sales), Personal Care (23%), Home Care (20%), Nutrition (22%), and Ice Cream (13%). Its products are low-ticket, repeatable purchases, with 3.4bn people using a Unilever brand every day. With unique routes to market, the company has an unrivalled emerging market presence and generates more than half of its sales from those parts of the world expected to experience strong long-term growth in demand. In particular, the group’s 62% holding in India-listed Hindustan Unilever Limited provides exposure to the largest consumer goods company in India.

Earlier in the year, the group announced the separation of its ice cream unit, a business that has distinct characteristics compared with Unilever’s other activities. These include a supply chain and point of sale that support frozen goods, a different channel landscape, more seasonality, and greater capital intensity. The group’s remaining four units have complementary routes to market, and/or R&D, manufacturing and distribution systems, across both developed markets and Unilever’s extensive emerging markets footprint. A demerger and separate listing of the business is the most likely separation route and is on track to complete by the end of 2025.

Post the separation of Ice Cream, Unilever will be focused on four Business Groups: Beauty & Wellbeing, Personal Care, Home Care, and Foods (formerly Nutrition). These four Business Groups will be driven by 30 Power Brands (including Dove, Hellmann’s, and Domestos) and operate across 24 Business Group-led markets. These 24 markets represent nearly 85% of Unilever’s turnover. The remaining 100+ smaller markets will be run on a ‘One Unilever’ basis to benefit from scale and simplicity, further enhancing the group’s focus.

The Growth Action Plan 2030 builds on the foundations of the existing Growth Action Plan and will drive consistent and improved performance under three strategic pillars: Focus, Excel, and Accelerate.

Unilever will focus on its Power Brands and the key markets where its believes it can drive the biggest returns. This means doubling-down in India, accelerating and internationalising Prestige and Wellbeing, premiumising and accelerating the US, growing select emerging market powerhouses, and premiumising Europe whilst protecting profitability.

Under the Excel leg of the strategy, Unilever will focus on five key opportunities to drive brand growth. These are unmissable brand superiority, social-first demand creation, multi-year scalable innovations, premiumisation, and growth channels.

Finally, the group will look to accelerate four critical capabilities to enable a step-up in performance. These are science and technology, lean agile supply chain, net productivity, and scaled AI.

Unilever’s medium-term guidance remains unchanged. Post the separation of Ice Cream, the aim is to deliver mid-single digit underlying sales growth, supported by underlying volume growth of at least 2%. The company expects modest underlying operating margin improvement, driven by gross margin expansion through operating leverage and productivity improvements.

The group will continue to target total shareholder returns in the top third of the peer group and achieve an underlying return on invested capital in the high teens, ahead of its previous ambition of mid-teens.

The business is a strong cash generator, and the company aims to sustain an average cash conversion ratio of around 100% over time. Capital allocation will remain disciplined, and include making investments to drive growth and productivity, continuing to reshape the portfolio through pruning and bolt-on acquisitions, and delivering attractive capital returns to shareholders. The company is currently undertaking a €1.5bn share buyback programme – the second and final €800m tranche commenced on 13 September and will end on or before 13 December.

Source: Bloomberg