Unilever Announces €1.5bn Buyback with Improved Margins, But Valuation Still Looms Large

What happened

Unilever has announced a €1.5 billion share buyback alongside its 2025 results, following the completion of the Ice Cream demerger. The company reported underlying sales growth of 3.5% and volume growth of 1.5%, with expanding profit margins, which management attributes to the strategic split. This progress aligns with the transformation outlined in the Growth Action Plan, but the buyback may be a short-term boost rather than a sustainable growth driver. Despite the improved metrics, the stock remains richly valued at approximately 32x P/E, about 39% above the DCF-based intrinsic value, as highlighted in the DeepValue report. The thin margin of safety persists, with execution risks from the ongoing transformation still unaddressed.

Implication

The €1.5 billion buyback, while signaling confidence, may reflect a lack of high-return investment opportunities rather than robust cash generation, diverting funds from needed growth initiatives. Improved margins post-ice cream split are a positive step, but they must be sustained to justify the elevated multiple and overcome competitive pressures. Execution risks from the demerger and €800m productivity savings remain critical, as any missteps could erode value and exacerbate the overvaluation. Valuation concerns are paramount, with the stock trading 39% above intrinsic value, suggesting limited upside without consistent growth acceleration or a price correction. Existing holders might consider trimming on any rally, while new investors should await a pullback or clearer evidence of sustainable performance before committing capital.

Thesis delta

The news demonstrates tangible progress in Unilever's transformation, with margin expansion and sales growth following the ice cream split, addressing some watch items from the DeepValue report. However, it does not materially shift the core thesis of overvaluation and execution risk, as the stock remains significantly above DCF and the buyback does not resolve competitive or ESG challenges. Thus, the recommendation stays cautious, with a potential sell bias unchanged unless further evidence of sustained improvement emerges.