Unilever falls short of revenue forecast, and BT gets Openreach boost

“On a busy day for corporate results the FTSE 100 eked out some reasonable gains, trying to regain some momentum after struggling yesterday,” says AJ Bell Investment Director Russ Mould.

“A fall in sterling, boosting the relative value of FTSE constituents’ overseas earnings, helped the index as currency traders eyed the Bank of England meeting later for any guidance on the prospect of negative interest rates in the near future.

“Oil prices continued to show strength after yesterday’s big gains on signs of tight supply, helping Royal Dutch Shell shares to remains steady despite a patchy set of results.”

Unilever

“Unilever is seen as the market’s old reliable friend, trustworthy and dependable no matter the economic backdrop. Coming in short of full year sales forecasts is not the done thing and so Unilever is somewhat punished by investors today for not delivering the required goods.

“Full year sales of €50.7 billion is slightly below the expected €51.6 billion figure, which is disappointing but far from disastrous. In its defence, €7.7bn free cash flow is better than €6.7bn expected by analysts as the company has paid more attention to ensuring it is paid efficiently by third parties.

“The company has laid out future growth plans which include a major focus on the US, India and China, and making more of the e-commerce channel. Restructuring costs of around €2 billion for the next two years may hard for some Unilever fans to stomach but the company is also targeting €2 billion annual cost savings.

“Fundamentally Unilever’s ability to keep thriving despite operating in a highly competitive marketplace is down to the strength of its brands, distribution power and marketing expertise.

“Achieving a target of underlying sales progression of 3% to 5% a year will take hard work and the shape of the business is likely to keep changing as it focuses on more prosperous areas. That means a mixture of acquisitions and disposals in the coming years.”

BT

“It feels like BT should have fared better than it did through the course of the last year. You would have expected a properly structured business which faced a relatively modest impact from both Brexit and Covid to have outperformed rather than underperformed the wider market.

“However, BT faces fairly severe structural challenges including an unhelpful regulatory backdrop, big spending commitments and yawning black hole in its pension scheme.

“At least today’s update did reveal a coronavirus-related boost for its Openreach infrastructure unit as lockdown generated massive demand for fibre broadband.

“On the flipside, we have been considerably less mobile in every sense of the word since March last year and this has hit revenue in the consumer division with mobile phone usage and roaming charges both well down on pre-Covid levels.

“BT faces a moment of truth in the coming weeks as it announces hundreds of millions of pounds worth of spending on 5G and rights to Premier League football, and the regulator announces the level of return it can generate on its £12 billion investment in its fibre network.

“The competition facing BT should also heat up assuming a proposed merger between rivals O2 and Virgin Media gets the green light.

“Chief executive Philip Jansen has been in post for more than two years and during his tenure has taken significant costs out of the business and suspended the dividend as he looks to focus investment on areas like 5G and fibre and on expanding BT’s footprint in areas like cybersecurity and the internet of things.

“However, BT’s hopes of becoming a business fit for the 21st century are hampered by legacy concerns from the 20th century like its pension scheme and regulatory constraints.”

These articles are for information purposes only and are not a personal recommendation or advice.