Broker snap: Nomura cuts Unilever forecasts after EM slowdown

1st Oct 2013 11:45

Nomura has retained its 'buy' rating for consumer products giant Unilever but has cut its estimates following a sharp slowdown in growth in the third quarter.A surprise trading update after the close on Monday night revealed guidance for 3-3.5% group organic growth in the third quarter as emerging markets have slowed in the last few weeks. Nomura had pencilled in growth of over 6%.The broker estimated that if sales in developed markets were flat during the period, then emerging-market growth (EMG) would have slowed from 10.3% in the first half to around 6.2%."This will weigh on expectations for fiscal year 2013 sales progression and corresponding margin development. Leads us to cut earnings per share (EPS) [forecasts] and target price by 6%," Nomura said.The broker highlighted that the stock has already de-rated in anticipation of a slowdown in emerging markets; since the end of May, the shares have fallen nearly 20%. However, at 18 times next year's earnings, it said that "the vulnerability for the stock is nearly on par with our 6% EPS cut in the short term, we think"."The medium-term story of improving margins, better cash generation and a more effective sales organisation remain in place. However, consumer trends in EMG have deteriorated much more than we anticipated and developed markets also remain challenging (in part ongoing Proctor & Gamble aggression we think)."The stock was down 3.57% at 2,352.89p by 11:43 on Tuesday.BC