UBS sees 2H sales pick-up at Unilever, notes support for unification

23rd Jul 2018 10:29

(Sharecast News) - Analysts at UBS hiked their target price on shares of Unilever in anticipation of a pick-up in the rate of underlying sales growth at the consumer goods giant in the back half of 2018, while reiterating their recommendation to 'buy'.The rate of USG would rise from 2.5% over the first six months of the year to 3.9% in the second half, they said, even as operating margins on an EBIT basis improved slightly, thanks to cost savings and product mix.Together with a favourable tailwind from foreign exchange markets, that would see the group's earnings per share grow three percentage points more quickly in 2018 and 2019, they said.Share buybacks and management's confidence were also factors, UBS explained in a researh note published on Monday but dated 20 July.Nevertheless, for fiscal year 2018 as a whole, USG were now seen up by 3.2%, which was down from the 3.5% UBS had been expecting before Unilever reported its first half numbers.The broker lifted its target for the shares from 4,250p to 4,700p on the back of its now higher estimates for the group's earnings per share and free cash flow, as well as the recent improvement in the sector's valuation on the back of the stabilisation seen in 10-year US Treasury yields.UBS pegged the company's weighted average cost of capital at 7.6% and the terminal rate of growth used for its discounted cash flow valuation at 2.5%.Analysts led by Pinar Ergun also noted shareholders' near "universal support" for the company's planned unification, which its chief executive believed would mark "an important next step to unlock the flexibility needed for future portfolio change, including through equity settlement acquisitions or demergers."That, the broker explained, should see investors increasingly consider using a sum-of-the-parts approach to valuing the shares.Its own updated SOTP valuation yielded a target price of £52, for 20% upside potential.