Jefferies International has retained its 'buy' rating on shares in Marmite maker Unilever PLC (LSE:ULVR) but reduced its share price valuation from £48.50 to £46.50, which is still higher than the current share price of £42.67.
According to the US investment bank's analysts, Unilever's net material inflation (NMI) surprised positively and is expected to go deflationary in the second half of the year, which will fund growth investment and not margin expansion.
The Jefferies analysts predicted that the new CEO, Hein Schumacher, will be able to capitalise on the falling prices, rising volumes, and increased investment.
The FTSE 100-listed company's fourth-quarter results were reassuring and showed positive surprises on NMI, which was consistent with Jefferies' thesis.
The company's underlying performance was steady, excluding one-offs.
The Jefferies analysts said they expect deflation in NMI in the second half of the year and gross margin expansion to fuel a growth-led recovery. Jefferies has upgraded Unilever's underlying sales growth by one percentage to 5.2%.