Unilever

Unilever is exploring the potential disposal of its food business and says it could fetch tens of billions of dollars. 

In our SOTP, the food business is valued at EUR42.6bn, (15x EV/EBIT).

After the ice cream spin-off, this would further clarify the positioning of Unilever and would likely reduce the discount placed by the market on the name.

Unilever’s current strategy is heavily weighted toward Beauty & Wellbeing and Personal Care—categories that typically offer higher growth and better margins than traditional packaged foods. While Food and HPC both sell to supermarkets, they operate different logistics chains, meaning that synergies are probably not massive. 

Markets tend to prefer pure play stocks over conglomerates as investors do not need the diversification offered by a conglomerate (they can get it by buying into other names on the market).

We can see the rational for a spin-off from a theortical financial standpoint, even though it also implies doubling some of the costs. And there is also the risk that the price fetched by the market disappoints (after all Ice cream valuation came in substantially below our initial expectations).

At current share price, the discount to our NAV only stands a 6.4%. Unless we are wrong on the potential valuation of the food business (15x EBIT looks like an already very decent price to us). We don't see enough upside to buy the stock at these levels.