Double upgrade whips up Unilever interest
Unilever is ditching ice cream in its pursuit of a slimline approach. Its shares have warmed to the strategy, with one City firm today seeing a further big upside.
22nd August 2024 15:49
by Graeme Evans from interactive investor
Resurgent Unilever (LSE:ULVR) shares were given fresh momentum today after a City firm’s double upgrade backed prospects without Ben & Jerry’s and Magnum ice cream in the portfolio.
Bank of America dumped its Underperform recommendation in favour of a Buy stance, with its new target price of 5,600p up from 3,800p previously.
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The shares today stood at 4,793p, having risen by a fifth since the March announcement of plans to separate Unilever’s ice cream division.
A productivity drive and a 4.1% rise in half-year sales have also boosted the transformation of the consumer goods giant, whose power brands include Dove, Knorr, Rexona and Sunsilk.
The shares now trade on a 2025 price/earnings multiple of 17 times, which is close to its average over the past decade and an approximate 7% premium to European staples.
Today’s new target price by Bank of America represents about 20 times forward earnings. The bank expects further sales momentum after forecasting 4.6% compound growth across 2023-26, driven by market share improvement and a more favourable portfolio mix.
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It highlights the benefits of the planned ice cream separation, particularly as it should allow management to focus on faster-growth categories and brands.
The division, which is home to five of the world’s top 10 selling ice cream brands including Wall’s, delivered turnover of 7.9 billion euros (£6.9 billion) in 2023.
Full separation is expected by the end of 2025, with Bank of America giving the business a potential enterprise value of about 14.5 billion euros (£12.3 billion).
The demerger will leave Unilever with the divisions of Beauty & Wellbeing, Personal Care, Home Care and Nutrition.
These business groups have complementary routes to market, unlike ice cream whose distinct characteristics include a frozen goods supply chain and heightened seasonality.
Chief executive Hein Schumacher, who took the helm last year, has said he wants Unilever to do “fewer things, better and with greater impact”.
His strategy has been boosted by three quarters of improving volume growth, as well as margin progression that’s fuelled increased investment and resulted in a step-up of profitability.
Schumacher added recently: “There is much to do, but we remain focused on transforming Unilever into a consistently higher-performing business.”
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