Image source: Unilever plc
Shares of The Magnum Ice Cream Company (LSE:MICC) started trading today (8 December), making them eligible for an ISA portfolio.
This came after the ice cream business was demerged from Unilever over the weekend. Unilever shareholders will receive one Magnum share for every five Unilever shares they own.
However, I’m not a Unilever shareholder. So, should I buy some Magnum shares for my ISA?
A sweet business
After digging into the company, I see a few things I like here. First off, this is the world’s largest ice cream business, with four of the five leading brands. These are Wall’s, Ben & Jerry’s, Cornetto, and of course Magnum. It also owns premium tub and dessert brand Carte D’Or.
Throw in Twister lollies, which are likewise made by the company, and that’s a memorable part of my childhood. Along with the associated brain-freeze!
The company commands an impressive 21% of the $87bn global retail market. Last year, this generated €7.9bn in revenue and €1.3bn of adjusted EBITDA.
This translates into a 16.5% margin, which is solid given the costs and complexity of running a frozen supply chain. The firm’s aiming for average annual margin improvement of 40-60 basis points over the medium term.
Another thing I like is the company’s powerful freezer cabinet strategy. Over the years, it has strategically placed approximately 3m of them in retail locations worldwide. But it does this on a free-on-loan basis, meaning the retailer gets to use the freezer cabinet at no cost, provided it primarily stocks the company’s ice cream brands.
Of course, this ensures these products are visible and readily available in summer for impulse buys.
Finally, I’m impressed with the leadership team here. CEO Peter ter Kulve has 35+ years experience at Unilever, and 10 years in the global ice cream business.
Sour points
Things I’m less bullish about? Well, there isn’t expected to be a dividend until 2027. This is slightly disappointing, as it’s the sort of well-established business I would expect to carry a 2%-3% dividend yield.
Looking ahead, management is guiding for average annual organic sales growth of 3%-5% in the medium term. While not heart-stopping growth, it would be decent if compounded over a decade, assuming it’s achieved.
Then again, I do wonder how much growth is ultimately left in this market.
Meanwhile, the Ben & Jerry’s founders continue their ‘social mission’, which can be political enough to put off some consumers.
Will GLP-1 drugs also become a problem? After all, hundreds of millions of people could be taking these weight-loss treatments in 10-15 years’ time. GLP-1s reduce cravings for high-calorie, sweet foods like ice cream, so this could be a key risk to sales growth.
Another thing worth mentioning here is that Magnum isn’t eligible for the FTSE 100 because its main listing is in Amsterdam. This means the stock might see downward pressure as index-tracking funds are forced to sell their shares.
And while Unilever retains a 19.9% stake, it intends to sell that down within the next five years. So this may act as a bit of an overhang.
Weighing things up, I’m not going to buy Magnum shares. But I’ll keep my eye on the ice cream giant in 2026 to see how the market starts to value it.
