Unilever share price slips as it considers another big spin off

Unilever share price remains in a technical correction after falling by 13% from its highest point this year. It has dropped to 4,800p from the year-to-date high of 5,492p, as investors focus on its upcoming turnaround.

Unilever is considering spinning off its food business

Unilever, one of the biggest players in the fast-moving consumer goods (FMCG) industry, is continuing its turnaround strategy. According to Bloomberg, the company is considering separating its food business, which includes its brands like Knorr, Hellmann's, Maille Dijon, Colman’s, and Namdong instant noodles.

This is a big business, with Hellmann's and Knorr making 60% of its food business. Its most recent results showed that its food business made over €12.9 billion, down 3.2% YoY. It is the second-biggest business after its personal care, which made €13.2 billion.

The food business has been slowing in the past few months because of inflation, which has pushed more customers to cheaper brands. Analysts also warn that the popularity of GLP-1 drugs will push customers to eat less calorie-dense products.

The spin-off, if it goes through, comes a year after the company separated its ice cream business into Magnum Ice Cream, of which it still owns 20% stake. It plans to continue selling it down in the coming years.

The spin off will likely be in the form of a sale, possibly to companies in the private equity sector. It may also plan to spin it into a separate publicly traded company.

The most recent results showed that Unilever’s business remained under pressure last year. Its turnover dropped by 3.8% last year to €50.5 billion, with all its segments falling. The beauty and well-being turnover dropped by 2.3% to €12.8 billion, while personal care, home care, and foods dropped to €13.2 billion, €11.6 billion, and €12.9 billion, respectively.

On the positive side, its operating profit rose by 2.4% to €9 billion, while the net profit jumped to €6.2 billion. As a result, it launched a new €1.5 billion share buyback and raised its dividend by 3%.

A key concern about Unilever is that the ongoing Iran war will likely affect its business, including affecting its supply chains and increasing the cost of doing business. Another concern is that its business is highly overvalued, with its forward price-to-earnings ratio being 18, higher than the sector median of 15.

ULVR stock chart | Source: TradingView

The three-day chart shows that the Unilever stock price has been in a freefall in the past few weeks. It has dropped from 5,480p to the current 4,800p. This retreat has pushed it below the 50-day and 100-day Exponential Moving Averages (EMA).

The stock also dropped below the Ichimoku cloud indicator and the Strong Pivot Reverse point of the Murrey Math Lines tool.

Therefore, the stock will likely continue falling this month, with the next key target being the Ultimate Support level at 4,087p.

On the positive side, the stock has formed a hammer candlestick pattern, pointing to a potential rebound in the near term.