logo-loader

Unilever the top pick of the sector, above Reckitt and Haleon in analyst's last message

Published: 16:26 09 May 2023 BST

Unilever PLC -

Unilever PLC (LSE:ULVR), Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) and Haleon PLC (LSE:HLN, NYSE:HLN) all got their share price targets increased by broker Jefferies after a completed round of first quarter updates.

Haleon, a year after being spun out from GSK, delivered the largest margin of beating the analyst consensus forecast, narrowly ahead of Reckitt but reservations remains and ‘hold’ ratings were reiterated in an outgoing note on the sector after 16 years from analyst Martin Deboo.

The largest of the trio, Unilever also pipped the City’s expectations and got the largest price target hike, up 13% to 5,000p versus a closing share price of 4,354p and a repeated ‘buy’ recommendation.

Unilever’s outgoing boss Alan Jope hands over the reins in the summer with newcomer Hein Schumacher given a “solid foundation”, analyst Martin Deboo said in his last note on the sector.

He said a recurrent question over most of those years has been “why an enterprise so conspicuously built for growth”, with 60% of sales in more globally-mobile home and personal care HPC and 60% in low per-capita consumption emerging markets “has contrived to lag” European benchmark Nestle in growth of volumes and product mix by 120 basis points over two decades and more than 250 basis points since 2020.

“We have thought that the path to closing that gap is to split and spin the (slower-growing and arguably less-loved) Foods business. It will be for new CEO Hein Schumacher to resolve that and to inject fresh zest generally.

“But with the performance gap closing and with Schumacher likely to be gifted, in our view, sharply rising volumes and gross margins in H2, I leave the field in an optimistic frame of mind.”

As for the sign-off on Reckitt, the analyst said the company had been a “byword for knock-it-out-of-the-park delivery, underpinned by a unique culture, with a premium valuation to match” for most of his first decade on the beat.

The South Korea steriliser scandal in 2016 proved to be the “precursor of seven years of mishap, drama and volatility” that has led to close to 30% share price underperformance to the sector “and a now heavily discounted valuation”.

It falls to new CEO appointment Kris Licht to “try to put this all in the rear-view mirror, with some helping hands in the form of a stabilising top line backdrop, a pivoting commodities climate and the undemanding valuation”.

The analyst also highlighted his longstanding concern over “the extent of senior leadership change at RKT and the problems of tissue rejection that it might bring”.

Newcomer Halon got a mixed send-off, with the “mood music [continuing to] warm”, the sell-down of Pfizer’s legacy stake aside.

“The upside case is that HLN carves out new valuation paradigm territory within Europe staples, as RKT once did.”

However, impressive as Haleon’s sales growth has been, “no firm conclusions can yet be drawn, in our view”, from a period where a strong boost has come from over-the-counter “in the midst of an epic cold & flu season”.

Haleon’s target price was nudged up to 350p versus a 337.95p close, while Reckitt’s was lifted 4% to 6,750p versus a close of 6,458p.

FTSE rises ahead of Easter weekend, JD Sport gains on upbeat outlook -...

The FTSE 100 gained on the final morning of this shortened Easter trading week. Festive cheer was limited though, as Thames Water confirmed shareholders would not provide it with a £500 million rescue package, prompting speculation over the London supplier’s future. On a more positive...

30 minutes ago