Broker snap: Investec stays cautious about Unilever

3rd Dec 2012 11:11

Following a Unilever investor and analyst seminar in Paris, Investec has raised its price target for the consumer products stock from 2,300p to 2,400p.Analyst Martin Deboo said: "The Paris summit impressed us again and evidence of an increasingly high-performing organisation continues to accrues. Confidence is building and the suite of repeatable success models is growing."He said that this all supports a "compelling" top line and gross margin story. However, with the company focusing more on the top line than the bottom line, the broker said that its valuation is perhaps a little too high. The stock is trading at 17 times earnings which equates to 10% required growth in earnings per share. "With the top line growing 5-6% and tax/balance sheet efficiency worth c.2%, operating margins need to expand by c.50bps pa to fill the gap. This doesn't look to be in the plan to us.""ULVR needs more bottom line juice for our ongoing admiration to turn into renewed conviction."Furthermore, the broker warns about the 'January effect' on the shares: the stock has underperformed the FTSE in 13 out of the last 18 Januarys, including four out the last five. Plus, the shares are trading near an all-time high.Deboo said: "So our message to long term believers is: 'Be happy'. Our message to potential new Parisian lovers is: 'Beware'."The broker has kept its 'hold' rating on the stock.BC