Defensive value?

Looking at a share in the FTSE-100

Personal Goods giant Unilever  is often a favourite of institutional and individual investors alike for a number of reasons: –

  • Diversified well known and popular brands such as Dove Soap, Ben & Jerry’s Ice Cream and Hellmans to name a few
  • Global revenues from America, Europe & Asia
  • Twenty four consecutive years of dividends with very few backward steps
  • Double digit share price growth for the last five years annualised

So whats not to like?

For a minute lets forget all this and just take a look at where some key indicators are now in relation to history.

ULVR key metric

Many ratios are at or near maximums, well above their long term averages; at the same time the yields and earnings yields have been forced down substantially which is often a clear warning sign that a share (or index) is getting expensive.

Starting at the top of the Income Statement and one of my favourite’s Price to Sales (PS); this ratio is often use to justify higher prices but use it properly as a measure of of valuation and it can keep you safe from potential disaster (for more on this read this Price to Sales ) – the current PS ratio for Unilever is near an all time high.


Looking at the 5 Year Rolling Peak PE this has never been higher and over laying a graph of subsequent five years returns show how important an indicator this is; the current level suggest investors are overpaying for earnings.


The predicted returns from the PE10 ratio reverting to its average also suggest that we should not expect too much from here – the correlation is not perfect but the trends are very close and we are now moving into negative territory.


Using a combination of historic ratios to create a fair value estimate we can see that Unilever may now be above fair value and the opportunity to invest that existed in 2007 and again in 2010 have now disappeared.

fair value est ULVR

Removing the story of what’s gone before (a well diversified, defensive company that has returned value to investors) and looking just at the facts I would not be purchasing Unilever Shares at current levels.

Leave a Reply

Your email address will not be published. Required fields are marked *