Wednesday newspaper share tips: Unilever, Ocado

Unilever’s plans to buttress its growth prospects in anticipation of weakness in emerging markets paid off last year. In September 2013 the company’s boss, Paul Polman, warned of a downturn in emerging markets – from which it derives about half its business. Rivals afterwards issued similar warnings, albeit to different degrees. Now Polman is warning of tougher market conditions ahead this year. The consumer goods-maker has responded by cutting costs hard and forcing through price increases where it can. It has also been adding premium high-margin products like Talenti and Grom.

Last’s year’s financials seem to indicate the strategy is working. Sales rose 4.1% versus 2014, half from volume and half from prices, while underlying sales in emerging markets grew 7.1%. Debt increased as a result of acquisitions, with a stronger dollar not helping matters given that it’s in dollars.

However, the company’s gearing does not look excessive. Selling on about 19 times’ earnings and sporting a yield of 3.1% they look worth holding in the long-term, given the firm’s demonstrated ability to navigate choppy waters, The Times’s Tempus said.

Ocado may have found a good business model, albeit accidentally. The digital grocer began carrying out deliveries for WmMorrison in 2013, the struggling supermarket chain. Now, some reports indicate it might soon ink another partnership with Amazon. Indeed, the company itself had led investors to expect just such an event towards the end of 2015. The absence of that explains in part why the share price had moved lower.

Nevertheless, part of the rationale behind Sainsbury’s purchase of Home Retail lay in the latter’s superior logistics. Similarly, Amazon was poorly-equipped to meet large multi-item, temperature-controlled to tight deadlines – Ocado’s speciality.

Given the long slog before Ocado might achieve the scale necessary to reap the full benefits of its growth, providing its technology to another big retailer could certainly deliver returns, but being bought out by one would be better, the Financial Time’s Lex column said.