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Unilever shares closed up 0.44% on Friday as investors began to buy back into the stock following a successful shareholder revolt against the Unilever management team which saw it reverse its plans to move its headquarters to Rotterdam ahead of Brexit.

Unilever is due to report for the third quarter on Thursday as its first attempt to simplify its share structure seems to have gone awry. Other parts of its plan, launched after the failed Kraft-Heinz bid, have been implemented, including the sale of spreads and a €6 billion share buy back.

Unilever shares: focus now on volume rather than price

Chief executive Paul Polman will be looking to show owners of Unilever shares that operational and financial performance are on track. Analysts are expecting that Unilever headline sales will be reported down on Thursday, owing to the sale of spreads, so the focus will be on underlying growth and how this compares to Polman’s target of an annual increase of 3-5%, a rate that Unilever has only achieved twice in the past seven quarters.

“Unilever has been focusing on volume growth rather than pricing of late, which may hark back to the dispute with Tesco over the price of Marmite in 2016,” says Russ Mould, investment director at AJ Bell.

Unilever does not tend to comment on profits at the third quarter stage, but Polman has laid down a target of a 20% operating margin by 2020. For this year as a whole the consensus forecast for headline operating profit is €9.2 billion with an underlying number of €9.4 billion. That implies an underlying operating margin expected by analysts of 17.8% which is very close to Polman’s 20% target yet a touch lower than analysts had been expecting over the summer months.

Unilever is licking its wounds after the proposed move of its headquarters was revealed not to have enough support from shareholders. The Unilever board had been trying to simplify the dual-headed nature of the company’s structure but is now going to be forced to consider alternative strategies. It will, however, proceed with its plans to cancel Unilever preference shares.

Had the Rotterdam proposal passed, it is highly likely that UK holders of Unilever shares would have been disadvantaged, especially given the forced selling of Unilever shares by ETFs and index tracker funds that would have ensued. According to stock broker Killik, the decision should be seen as “a slight positive” as it removes some of the near term uncertainty surrounding Unilever shares.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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