Unilever PLC (LON: ULVR) shares have underperformed recently, falling 9% while the UK market more generally has risen 11%. Unilever is actually large enough that we’d expect it to – at least – track the market itself. So, what’s going wrong at Unilever?
Terry Smith – and he’s good at this fund management thing so we should listen to his views – thinks that the going woke thing has gone too far. As he says, Helleman’s mayonnaise has been around since 1913, there’s not really much thinking needed about what its purpose is.
However, at the heart of the Unilever story is an argument about what really matters. One story that can be told is that Unilever simply must go woke because the world must go woke and therefore so must capitalism. We might think that’s tosh and we might not but some do indeed believe it.
The more sophisticated answer is that if enough people believe Unilever must go woke then shareholders will benefit from Unilever going woke. Maybe consumers will be so excited by the use of less palm oil – just an example – that they’ll buy more Unilever products and profits will rise. Maybe Ben and Jerry’s not being sold in “Occupied Palestine” will lead to more than compensating higher sales elsewhere?
Equally, there’s that tidal wall of ESG investment money out there all looking for woke homes. So, maybe enough other investors will be attracted by the going woke and this will bump the Unilever share price as a result of these woke activities?
That is, if going woke is good for shareholders then why shouldn’t Unilever go woke? The aim of a company like Unilever is, after all, to make money for shareholders.
The problem with this more sophisticated view is that it’s not actually working. Which is what Terry Smith is pointing out and complaining about. The share price is underperforming the market. Profits aren’t increasing as a result of the wokeness. We actually seem to be seeing a deterioration in the business performance as a result – our old friend that idea of “Go Woke, Go Broke” being proven at Unilever. Well, no, we don’t expect Unilever to go broke but the point stands.
If going woke isn’t making more mney for Unilever shareholders – Terry Smith’s observation – then should Unilever continue to go woke? – Terry Smith’s question. Right there being the likely guide to the future performance of Unilever’s share price.
It’s possible that the Unilever strategy will work. Not that there’s any evidence but it’s possible. But then there’s also that possibility that given the lack of evidence the policy will be reversed. Those more expensive ingredients that woke requires will be dropped, margins will widen, profits rise and the Unilever share price soar again.
The thing to look out for, which might presage a Unilever share price breakout, is any hint that the going woke idea is to be dropped.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.