Unilever Pulls Up Stakes; Here's the Impact

We do not believe

There are several reasons why the decision to locate the single headquarters in the Netherlands is not surprising. First, the Dutch share class is more liquid and represents a higher proportion (around 55%) of the total share capital. Second, Brexit makes access to the European common market for U.K. companies uncertain. Third, Britain has taken a relatively laissez-faire attitude to foreign takeovers in recent years, and the acquisition of Cadbury by Kraft in 2010 is an example of one of Britain's consumer product crown jewels falling into the hands of foreign ownership. Having itself been a target for the now enlarged Kraft Heinz last year, we suspect Unilever likely regards the relocation of the legal entity away from Britain as an added bonus in its takeover defences.

Overall, however, we regard this as essentially a nonevent from a valuation perspective, and we remain constructive on Unilever. The company's restructuring of the business to allow resources to flow more freely to local markets gives us conviction that management is making the right steps to reignite growth in an environment of sluggish real wage growth and increasing consumer apathy to consumer product brands. Unilever's wide moat is intact because it has the resources to defend its shelf space and its position as a preferred vendor in mainstream channels. With around 20% upside to our fair value estimate, we believe the shares are approaching an attractive margin of safety.

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