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Nick Train: Unilever move from UK not in investors’ interests

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Nick Train: Unilever move from UK not in investors’ interests

Star fund manager Nick Train has added to his long-standing position in ‘exceptional’ Unilever (ULVR) but warned he may vote against the Anglo-Dutch company’s plan to collapse its dual structure and move its main headquarters to Rotterdam from London.

The £122 billion consumer goods giant, which owns a multitude of household brands like Dove soap and Ben & Jerry’s ice cream, argues that adopting a single Dutch structure will save money and increase its flexibility compete in markets of the future. 

It says its shares will remain listed on the London Stock Exchange, although critics say the stock may become ineligible for inclusion in the FTSE 100, which would prevent some shareholders holding it.

Unilever is a core holding for Train who passionately believes that big multi-national companies with valuable consumer brands are the best and most sustainable investments in the world. 

It is the second largest holding in Finsbury Growth and Income trust (FGT), making up 9.5% of the £1.3 billion investment trust he has managed for 18 years. Unilever is also the fourth biggest publically listed shareholder in Lindsell Train (LTI), accounting for 6% of the £207 million global investment trust whose shares trade on an exorbitant 37% premium to net asset value.

‘We own Unilever plc and the question is why we, or any other shareholder, vote to lose our access to the plc line,’ he told investors at the Frostrow investment companies conference in London today.

‘The company is yet to propose its final documents explaining to us why it makes sense to give up the UK piece of paper, but right now we are not persuaded it is in the interest of our clients.’

Uncertainty over the future of Unilever’s corporate structure is not detracting from its continued attractiveness for the fund manager who has added to a position he has held for 14 years and ‘never willingly sold a share’.

He also increased his stake last year after the company saw off a £115 billion bid approach from Kraft, which at the time Train said show how undervalued the business was by stock market investors, given its long-term potential.

Train said Unilever was a ‘truly exceptional company’ due to its more than 50-year track record of dividend growth, which has seen income payouts compounded at 8% a year, and its stellar growth.

‘Over the last 25 years the Unilever share price, ignoring the dividend, has gone up 6.7x,’ said Train. ‘By contrast, the FTSE All Share has not even trebled at 2.7x – that’s nice outperformance.’

The level of both share price and dividend growth means that Train is unconcerned by rising interest rates and fears that reliable ‘bond proxy’ stocks, like Unilever, will become less attractive as bond yields rise.

He said ‘the correct question to ask is not will rising interest rates hurt the business…the correct question is can this company continue to deliver 8% per annum dividend growth in future?’.

And Train believes it can thanks to the ‘unanticipated source of growth’ that has been emerging markets, which now make up nearly 60% of revenues.

As the dividend has grown 8%, revenues in emerging markets have grown 9%, and it continues to grow. Train said six or seven years ago, 2 billion people used a Unilever product everyday but that has grown to 2.5 billion today.

‘Over six or seven years the company switched on 500 million customers and there is much more to go for,’ he said. ‘The jewel in the crown of the emerging market business is the Indian subsidiary – Hindustan Unilever. Revenues are up 16% not 9% and the share price is just about to hit an all-time high.’

Train's long-term, low turnover dedication to 25 stocks possessing valuable brands or empowering their business digitally has made FGT the best performing UK equity income trust over 10 years, generating a total return for shareholders of 314%.

 

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