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Two rows of Ben & Jerry's ice cream tubs in various flavours.
Unilever, which is behind the ice cream brand Ben & Jerry's amongst others, is a company that is fundamentally undervalued, according to the portfolio managers of SKAGEN Global. Photo: Bloomberg.

The London-listed Unilever has been one of the positions in the broad global equity fund SKAGEN Global since 2011 and is one of the largest holdings at present, accounting for almost five percent of the portfolio. The 100-year old company is behind the makers of Magnum ice cream, Lipton tea, Dove soap and Axe deodorant. It has provided its shareholders with a very good return of almost 10.1 percent per year in US dollars for the past ten years, compared with 4.7 percent per year for the benchmark index MSCI AC World.

Fundamentally undervalued

Unilever recently attracted a great deal of attention when the food giant Kraft Heinz – controlled by investor Warren Buffett – attempted to take over the company. Kraft Heinz made an opening bid of EUR 143 billion, which is an 18 percent premium to the share price.

"And that was just the opening bid. The value of Unilever is far higher. You can hardly imagine a more long-term value investor than Warren Buffett," comments lead portfolio manager of SKAGEN Global, Knut Gezelius.

Unilever has been named a "responsible capitalist" and has initiated various programs to support farmers, decrease water consumption in its factories and reduce child mortality in developing countries.

"It is a fundamentally undervalued company and a good example that it is possible to find value even when the Price/Earnings ratio is not low," explains Søren Milo Christensen, portfolio manager of SKAGEN Global.

Changes that can trigger value

The UK-based security giant G4S (three percent of SKAGEN Global's portfolio) published a good earnings report in March. At the beginning of last year, G4S issued a profit warning and there was concern that the dividend to shareholders would be reduced or dropped altogether, possibly in connection with a new issue. The SKAGEN Global team chose to increase their position in the company.

G4S is the world's largest security company, operating within surveillance and alarm systems, and cash handling. About three years ago, the company reviewed its portfolio and a number of businesses have since been sold off. Since then G4S has gradually paid down its debt and as a result the cash flow is now starting to improve. As part of our commitment to environmental, social and corporate governance (ESG), SKAGEN Global has on several occasions met with company management and emphasised the importance of clear progress in plans to streamline the companies and spin off troubled businesses.

"It is important too that they have restored market confidence so promptly. G4S is a turnaround story with changes ahead that could lead to the share price being upgraded. These changes are now beginning to take effect. In addition, the company is benefiting from its exposure to emerging markets. The stock has returned 28 percent so far this year in local currency," says Knut Gezelius.

Pioneering drug research

SKAGEN Global is overweight the healthcare sector – at the beginning of 2017, healthcare constituted four percent more of the fund's portfolio than that of the index. Last year SKAGEN Global suffered from this exposure as the rotation from health stocks meant that pharmaceutical companies such as Swiss company Roche performed weakly.

Roche, which at the time of writing makes up almost five percent of the Global portfolio, improved its results for the full year 2016 and sales were up by five percent measured in Swiss francs. Their flagship cancer-fighting treatments Avastin and Herceptin in particular pulled up the results. In March, the Roche share price gained seven percent in just one day after the company reported positive results from a clinical study of Herceptin in combination with another cancer drug, Perjeta.

According to Søren Milo Christensen and Knut Gezelius, Roche's results may strengthen the company's chances of averting the threat from similar generic drugs on the market:

"The positive results mean that doctors the world over are likely to prescribe these drugs and patients be willing to pay for them. We estimate that this may lead to a ten percent increase in annual results."

Read more:

SKAGEN Global – equipped for excess return

Undervalued, under-researched and unpopular: SKAGEN's investment philosophy

SKAGEN invests responsibly for the long term


Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager's skill, the fund's risk profile and management fees. The return may become negative as a result of negative price developments.