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FTSE stalls as Unilever pays for emerging markets reliance
by Chris Marshall on Oct 01, 2013 at 10:07
A warning of lower sales from Unilever, the consumer goods company that has suffered from its reliance on emerging markets, weighed on the FTSE 100 on Tuesday morning, with the maker of brands including Dove and Flora dragging down other consumer stocks in its wake.
While exposure to emerging markets from FTSE 100 companies had been a long-held aim of many investors, Unilever has paid the price, announcing sales growth of 3-3.5% in the third quarter.
The warning, which came after the markets closed on Monday, sent shares in the Anglo-Dutch company down nearly 4% to £23.44. Other consumer companies including Reckitt Benckiser and SabMiller followed in Unilever’s wake, both down 2.5%.
‘Don’t panic’ was the advice from Panmure analysts in a research note. ‘This clearly isn’t good news for the shares short-term, but we don’t think it should change the fundamental thesis for the stock.' However, it shows Unilever’s ‘over-reliance on developing markets’ and need for improvement in some develop market business areas, they added.
Some analysts cut their price targets on the shares, but there appeared to be no immediate rush of brokers crying ‘sell’.
‘We do not plan to downgrade the buy stance in Unilever as we still think the company offers compelling value,’ commented Liberum’s Pablo Zuanic.
US government shutdown
While Britain’s FTSE 100 edged lower 0.1% to 6,453, shares across Europe were generally holding up, despite US politicians’ failure to prevent a government shutdown. Congress’s failure to agree a budget means some federal employees will be forced on unpaid leave in the first such shutdown for 17 years.
Investors should take the opportunity to buy, suggested fund managers. ‘We do not expect the fiscal standoff in Washington to have a lasting impact and stock market weakness presents a buying opportunity,’ said Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment.
Wolseley special payout
Investors certainly weren’t afraid to put their hands in their pockets for shares in Wolseley, the plumbing supplies group, which rose 2% to £32.61 after it announced that its full-year profits had more than doubled. That news came alongside a 10% rise in the firm’s dividend and the announcement of a £300 million special dividend.
Jefferies analysts said the company would have been wiser using the cash to buy more companies rather than a special dividend: ‘We continue to favour increased acquisitions in the US, where the Group is the clear market leader, in an industry that remains largely unconsolidated, allowing it to better leverage its greater size and operational efficiencies.’
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- Unilever PLC (ULVR.L)
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- Reckitt Benckiser Group PLC (RB.L)
- SABMiller PLC (SAB.L)
- easyJet plc (EZJ.L)