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RBC Capital Markets downgraded Unilever on Monday to ‘underperform’ from ‘sector perform’ and slashed the price target to 4,000p from 4,800p.
The bank said Unilever "hasn't the wherewithal" to boost volume performance sufficiently to achieve its 2% growth aspiration given its lack of market dominance, significant non-focus brands and markets (25%/15% of sales respectively), a less benign gross margin environment and record/intention of significantly lower capital investment than the competition.
It said the valuation is pushing towards best-in-class level which it thinks is unjustified, while risk/ reward is weighted to the downside.
"There is no single reason for this downgrade," RBC said. "Rather, we believe that investors' perception of Unilever has shifted from laggard to best-in-class on the back of a revived senior management team, a couple of good quarters benefiting from very strong gross margin bounce-back (just as at P&G), well-received rhetoric around operational strategy and the decision to offload the ice cream business.
"We have no problem with any of this, but think that the shares' 32% outperformance versus the MSCI European consumer staples sector in 2024 was excessive."
RBC said Unilever's portfolio is solid rather than spectacular. "It's the market leader in its business, but to a much lesser extent than Nestlé, for example," it said.
It also said that volume growth has averaged less than 1% per year since 2014 and RBC doesn’t expect that getting rid of the ice cream segment will do much to boost that.
"In our view the 2% aspiration is a big ask," RBC said.
"Nor do we expect emerging markets to close the gap," it added, noting that emerging market participation has barely moved over the last decade despite superior "organic" growth, a victim of EM currency depreciation.
RBC said the company’s focus on 30 Power Brands and 24 key markets makes sense as far as it goes, but despite management's protestations, it worries that the remaining 25%/15% of sales (comprising about 370 brands or 100 OneUnilever markets) risk being neglected and dragging down the whole.
The bank also pointed out that brand investment has increased sharply, but said it can't extrapolate that with confidence.
"Unilever has benefited from a benign gross margin environment and arguably could/should have invested more," it said.
RBC said it thinks that Unilever has significantly under-invested in capex over the long term and believes that a prolonged increase is needed if Unilever is to have any chance of hitting its 2% volume growth goal.
"The consequent decline in depreciation (-140bps since 2020) as well as much higher restructuring costs than peers (ignored in 'underlying' profits) materially diminish Unilever's earnings quality in our view," the bank added.
Sharecast.com |
Yes, maybe.
ii.co.uk market report
AJ Bell's Mould commented. "Share price weakness in big brand companies including Unilever, Reckitt and Haleon is often a signal that investors are worried about consumer spending and growing inflationary pressures. Renewed cost pressures may prompt companies to hike prices and this could see shoppers switch to cheaper supermarket own-brand items. It's a major risk for investors in big brand stocks to consider.
"Driving down the shares in the sector this time was negative broker comment as RBC downgraded Unilever to 'underperform', which hurt the Marmite maker and took its big brand peers down at the same time." |
#Philanderer, another broker talking their own book..
No matter, time for top ups come new ISA day.. :o) |
Downgraded today.
RBC cuts Unilever to 'underperform' (sector perform) - price target 4,000 (4,800) pence |
Unilever a continue disappointment over the past 5 years. |
Unilever lost 1 per cent, or 44p, to 4608p after the consumer products giant said it has received a binding offer for its Unox and Zwan meat and soup brands from Zwanenberg Food Group
Mail market report |
https://news.sky.com/story/amp/unilever-slims-food-unit-with-auction-of-the-vegetarian-butcher-13260984 |
Unilever Backs Ice-Cream Spinoff by End of 2025, Midterm Targets
Unilever confirmed the separation of its ice-cream business by the end of next year and said it is on track to deliver its 800 million euros ($837.9 million) turnaround program.
The consumer-goods giant behind brands such as Dove soap and Knorr stock cubes said the new organization will consist of four groups, driven by its 30 major brands and operating across 24 key markets, which represent nearly 86% of its total turnover.
The company also backed its midterm targets. It continues to expect underlying sales to grow by a mid-single-digit percentage after the separation of the ice-cream division, supported by underlying volume growth of at least 2%.
It also aims for a modest underlying operating margin improvement, driven by gross margin expansion through operating leverage and productivity improvements, it said on Friday.
morningstar.com/news/dow-jones |
Investor Event today must be going well.
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Unilever invests to build world-class fragrance expertise in-house |
Unilever prioritized buybacks over dividends (probably 3 billion pounds in the timeframe of divided stagnation). |
As an income investor and very long term holder I'm well aware that unfortunately quarterly divis remained unchanged at 42.68 eurocents for as long as 14 quarters between Q4 2020 and Q1 2024. In Q2 2024 it was raised 3% to 43.96€¢, which nowhere near makes up for the lengthy 3 1/2 year stasis of the payouts during which inflation did its business.
Naturally this history is way better than cuts but imo ULVR is perhaps not quite the divi hero.
The sterling values will differ due to fluctuating FX rates but it's the euro values that tell us the company's policy. |
#Alotto, the XD drop was more than I expected to see, the dust will settle post US election with interest rate cuts both side of the Atlantic which will in turn promote premium and luxury sectors..
Sabre rattling over wider US import tariffs could weigh heavy for a while, see what the chart says but I am not expecting much more of a retrace from here..
See what we get today.. :o) |
Laurence I agree, I will add at £44 if we will see £44 |
#Alotto, that is what makes it a safe place to invest, moving very slow and steady with a consistent safe quarterly dividend, I am looking for my last top up here so a retrace is most welcome, then it can push on again through 5000 and we will see what happens to the ice cream business spin off.. :o) |
Unilever is just boring. |
Disappointing few week. Absolutely no idea why this has bounced off fifty quid. Anyone any ideas? |
The dividend yield is not enough to support further appreciation.unikever has to boost the payout.
I expect the demerger of the ice cream business will boost significantly the share price by 2025 end.
I was out at £47. I missed the dividend payment. I will get back in if we test £44. Unilever moves too slowly even for trading in and out |
Another good kicking today. |
Next glass ceiling to break is £50 |
Unilever (ULVR) delivered a stronger than expected underlying performance in its third quarter as its ice cream arm, which the consumer goods giant hopes to spin off by the end of 2025, benefited from a soft comparative. Underlying sales growth came in at 4.5 per cent in the quarter, ahead of the company-compiled consensus of 4.2 per cent, as ice cream sales rose 9.8 per cent. Stripping out the ice cream performance, which management attributed to distribution gains, promotions and product innovations, sales rose 3.6 per cent.Underlying volume growth of 3.6 per cent also beat consensus. Total revenue of 15.2bn (£12.6bn) was flat, a result impacted by currency headwinds and net disposals. The spin-off of the ice cream unit, which sells brands including Magnum and Ben & Jerry's, is part of chief executive Hein Schumacher's growth strategy. The unit has historically posted slower growth than other parts of the portfolio, while Ben & Jerry's has caused legal headaches for the business. Unilever said it had made progress with setting up a separate ice cream legal entity and operating model.Another part of the plan is a focus on the company's top "power brands", which deliver more than three-quarters of revenue. In the third quarter, these brands outperformed, with underlying sales and volume growth of 5.4 per cent and 4.3 per cent, respectively.Meanwhile, Unilever exited Russia in October through the 520mn sale of its subsidiary to manufacturer Arnest. The company had attracted criticism for remaining in Russia after the invasion of Ukraine. The subsidiary only contributed around 1 per cent of total revenue and net profit last year.The company stuck to previous annual guidance for underlying sales growth of 3-5 per cent and an underlying operating margin of at least 18 per cent. Unilever trades on 18 times forward consensus earnings, a rating in line with the five-year average. Last IC view: Hold, 4,648p, 25 Jul 2024 |
Barclays raises Unilever price target to 5,450 (5,200) pence - 'overweight' |
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