Broker snap: Limited scope for upside in short-term at Unilever

28th Oct 2013 09:09

Consumer goods conglomerate Unilever has the means to withstand weaker growth in its markets and increased competition. However, it needs to improve growth in developed markets and it has been a disappointingly long time (nearly two years) since the company's last material acquisition, analysts at Panmure Gordon wrote. Thus, the company's latest trading update showed that the rate of contraction in developed market growth slowed in the third quarter from -1.6% to -0.3%. However, that came despite a surprisingly poor performance in North America, while the rate of expansion in Europe barely edged into positive territory.As regards to emerging markets, growth slowed sharply, from 10.3% in the first half of 2013 to a 5.9% pace in the first quarter, led by a deceleration in Asia/Africa. The expansion of sales in Latin America was hit by SAP changes and an on-going product recall. Furthermore, while the broker is confident that sales growth will tick-up in the fourth quarter, earnings per share growth this year and next will be held back by the currency drag, it goes on to explain. For all of the above reasons they have decided to lower their price target on the shares to 2,625p (from 2,800p) and move to a hold recommendation, from buy. That equates to a 2014 price-to-earnings multiple of 19.6 times and an enterprise value/earnings before interest, taxes and depreciation (EV/EBITDA) multiple of 12 times, offering just 6% upside from current levels. AB