Morning Note: Market news and updates from Unilever and RELX.
Market News
Donald Trump and Kamala Harris are in a dead heat among likely voters in seven swing states at 49% support each, according to the Bloomberg News/Morning Consult poll. Harris was 1.7 points ahead in Pennsylvania, but Trump held an advantage on the economy, with 50% trusting him more to handle it. Trump has a 2-point lead over Harris in a WSJ poll.
US equities fell back last night – S&P 500 (-0.9%); Nasdaq (-1.6%). After hours, Tesla rose by 7% following the release of positive results, while IBM fell on underwhelming sales. The dollar held near 3-month highs, while the 10-year Treasury yields 4.21%. Gold has recovered somewhat following yesterday’s decline and currently trades at $2,735 an ounce. Brent Crude firmed to $75.60 a barrel.
In Asia this morning, the Hang Seng (-1.1%); Shanghai Composite (-0.8%) retreated as concerns about China’s economy and a tight US presidential election dented sentiment. The yen halted a three-day drop, while the Nikkei 225 rose by 0.1%. Japan’s Finance Minister Katsunobu Kato said he sees one-sided, rapid moves in the currency market.
The FTSE 100 is currently trading 0.5% higher at 8,303. UK inflation is cooling faster than Bank of England officials had anticipated, Andrew Bailey said. It’s the latest hint that the BOE may continue lowering rates next month. Sterling trades at $1.2940 and €1.2010.
An ECB hawk sees another 25 basis point interest rate reduction in December even as inflation pressures linger. “A bigger half-point cut is unlikely though not impossible,” Robert Holzmann said in an interview. But officials may also conclude their pre-emptive October move justifies a break, he added.
Source: Bloomberg
Company News
Unilever has today released Q3 results which were slightly better than expected, with sales growth driven by improved volume. Growth in Europe and Norther America was particularly impressive. The productivity programme and the separation of the Ice Cream business are on track. The company confirmed its outlook for full-year for revenue growth and margins. In response the shares have been marked up by 3% in early trading.
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.
At the end of last year, new CEO Hein Schumacher set out an action plan to address the gap between the group’s past performance and its potential. The focus is on:
1. faster growth: focus first on 30 Power Brands (75% of turnover including Dove, Hellmann’s, and Domestos), scale multi-year innovation, increase brand investment and returns, and selectively optimise the portfolio.
2. greater productivity and simplicity: to build back the gross margin and drive the benefit of the new organisational structure. In time, the group is confident it can return to pre-covid gross margin (44%), a level that is seen as a floor not a ceiling.
3. a stronger performance culture: there has been a raft of senior management changes and a new incentive framework to better align with shareholders.
In March 2024, the group announced an acceleration of the plan through the separation of its ice cream unit and the launch of a productivity programme to drive faster growth and a higher margin. The group is already starting to see the positive impact from scaling fewer, bigger innovations across its markets supported by increased brand investment.
Ice cream accounts for 13% of group sales and has distinct characteristics compared with Unilever’s other operating businesses. 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 of the ice cream unit is the most likely separation route, although other options will be considered to maximise returns for shareholders. In today’s update, the group highlights that separation activity is on track to complete by the end of 2025, with progress made with the legal entity set up, the standalone operating model, and the carve-out financials.
The productivity programme has been accelerated and is anticipated to deliver total cost savings of around €800m over the next three years, more than offsetting estimated operational dis-synergies from the separation of Ice Cream. This does not include the tax dis-synergies given it is unclear at this stage what form the separation will take. Overall, these actions will leave Unilever with a structurally higher margin. Post separation, the aim is to deliver mid-single digit underlying sales growth (vs. the previous target of 3%-5%) and modest margin improvement. The group will continue to target total shareholder returns in the top third of the peer group.
Back to today’s results. In the third quarter, turnover were flat at €15.2bn, held back by the impact of currency fluctuations (-2.8%) and M&A (-1.5%). Adjusted for these impacts, underlying sales growth (USG) – the key performance measure – was up 4.5%. This was ahead of market expectations (4.2%) and the first half (4.5%), and was generated despite the backdrop of slower market growth
Volume grew by 3.6%, an improvement from 2.6% in the first half, while underlying price growth of 0.9% continued to moderate in line with expectations.
The 30 Power Brands grew by 5.4%, driven by a 4.3% increase in volume, with particularly strong performances from Dove, Liquid I.V., Comfort, and Magnum. The other brands saw a sequential volume improvement to +1.3% in Q3, versus a 1.6% decline in the first half.
In emerging markets, USG was 2.9%, held back by Indonesia and China where distribution issues are currently being addressed. Developed markets grew by 6.9%, with North America and Europe up 7.4% and 6.5% respectively, driven by the benefit of significant investment in innovation.
All five businesses reported growth: Beauty & Wellbeing (+6.7% USG to €3.2bn); Personal Care (+4.4% to €3.4bn); Home Care (+1.9% to €3.0bn); Nutrition (+1.5% to €3.2bn); and Ice Cream (9.8% to €2.4bn).
As expected, the group is seeing a sequential improvement of market share trend over time reflecting increasing benefit from the Growth Action Plan.
As expected, there was no comment on the group’s profitability or balance sheet with this release. At the half-year stage, net debt was €25.2bn. The company has completed the first €700m tranche of its €1.5bn share buyback programme. The second and final €800m tranche commenced on 13 September and will end on or before 13 December. The quarterly dividend has been raised by 3% to €0.4396, although in sterling terms it is down 1% at 36.63p due to currency movements.
The group still expects underlying sales growth to be within the multi-year range of 3% to 5%, with most of the growth being driven by volume. Underlying operating margin for the full year is now expected to be at least 18% with increasing investment behind the group’s brands.
Source: Bloomberg
RELX has this morning released a brief but reassuring trading update covering the first nine months of 2024 and reaffirmed its outlook for the full year. The company continues to buy back its shares as part of a £1bn programme. In early trading, the shares are little changed this morning.
RELX (formerly Reed Elsevier) is a global provider of information-based analytics and decision tools for professional and business customers. The company provides data, software, and research services to lawyers, corporates, and academics. It also owns a world-leading trade-show business.
The company’s insights are used by a university benchmarking its performance; a doctor deciding the best way to treat a patient; a litigator assessing whether to take a case to court; a retailer deciding if a transaction is genuine; or an insurance underwriter assessing the likelihood of a claim. Many of its products and services are sold on annual subscription. They are very sticky – often mission critical – and tend to be deeply embedded into customers’ workflows, as demonstrated by renewal rates remaining on average over 90%. This drives pricing power, attractive margins, and strong cash conversion.
The group is enjoying an improvement in its long-term growth trajectory driven by the ongoing shift in business mix towards higher growth analytics and decision tools that deliver enhanced value to its customers. RELX has been embracing AI technologies for well over a decade and has developed and deployed these tools across the company. The ability to leverage AI as it evolves will continue to be an important driver of the business going forward.
After the impact of M&A, exhibition cycling effects, and currency, underlying growth was up 7% in the nine months to 30 September. The company operates through four divisions, all of which grew in the period. In the Risk business, RELX evaluates and predicts risk and enhances operational efficiency. Among other things, the company helps businesses and governments prevent fraud, assess insurance risk, and gain commodity intelligence. So far this year, revenue is up 8% in underlying terms, driven by the group’s deeply embedded analytics and decision tools across segments. For the full year, there will be continued strong underlying revenue growth with underlying adjusted operating profit growth slightly exceeding underlying revenue growth.
In Scientific, Technical & Medical, the company’s peer-reviewed journals and online platforms help researchers and healthcare professionals advance science and improve health outcomes. Revenue grew 4%, driven by the evolution of the business mix towards higher growth segments. For the full year, the group continues to expect continued good underlying revenue growth with underlying adjusted operating profit growth slightly exceeding underlying revenue growth.
In Legal, the company hosts over 144bn legal and news documents and records (that have become the industry standard), helping lawyers win cases and manage their work more efficiently. Revenue was up 7% driven by the shift in business mix towards higher growth, higher value analytics and tools. For the full year, the group expects continued strong underlying revenue growth with underlying adjusted operating profit growth exceeding underlying revenue growth.
The Exhibitions division runs around 250 face-to-face events across 42 industry sectors in 22 countries, all of which have digital and data tools and platforms to extend the reach of the event. Revenue grew by 13% driven by the improved growth profile of the event portfolio and a favourable comparison with the early part of the prior year. For the full year, the group expects strong underlying revenue growth with an improvement in adjusted operating margin.
As expected, there was no detail on the group’s profitability or financial position in the statement. The company is currently repurchasing its shares. Following the completion of its £800m programme in 2023, the group is buying back another £1bn of stock in 2024.
Looking forward, RELX continues to see positive momentum across the group, and expects another year of strong underlying growth in revenue and adjusted operating profit, as well as strong growth in adjusted EPS on a constant currency basis.
Source: Bloomberg