Analysis-Death of the consumer conglomerate? Unilever bets less is more

Unilever is attempting to reduce its valuation gap with more focused consumer goods competitors by shedding food assets and concentrating on beauty, personal care, and home products. Currently, the company trades at a valuation multiple of 11.5 times enterprise value to core earnings, which is lower than its peers in the consumer goods sector.

Unilever's recent merger with McCormick leaves the British company with a roughly 10% stake in the combined entity, while its shareholders hold about a 55% stake. However, this strategic move comes with the challenge of demonstrating to investors that the simpler company can deliver higher returns. Critics argue that the market remains skeptical of Unilever's turnaround plans, requiring three to four quarters of strong volume growth to win over doubters.

Major industrial companies, such as General Electric and Siemens, have also attempted to simplify their structures to eliminate the conglomerate discount, a penalty applied to complex companies. Unilever has accelerated its retreat from food, with CEO Fernando Fernandez focusing on cost-effectiveness and innovation through a narrower product range.

The company's emphasis is now shifting from portfolio reshuffling to execution, with analysts expecting a potential re-rating of Unilever's stock if it continues to deliver strong results.