Citi has trimmed its near-term forecasts for Unilever PLC (LSE:ULVR) ahead of its first-quarter update on 24 April, warning that the consumer goods giant faces a sluggish first half, but sees the long-term investment case as remaining intact.
The US bank now expects first-quarter organic sales growth (OSG) of 2.5%, down 40 basis points, citing weak demand in developed markets and a subdued pricing environment in Southeast Asia.
Analysts also sees a 20 basis point dip in margins in the first half, with the equity story “heavily back-end loaded”.
As well as CEO Hein Schumacher being given his marching orders after less than two years, the Citi analysts flagged potential disruption in the second half from the planned spin-off of Unilever’s ice cream business.
But overall, they believe a margin recovery is on the way, driven by improved pricing power and mid-single-digit sales growth.
Despite no further share buyback being expected in H2, the Citi team said Unilever should have enough free cash flow, especially with proceeds from its accelerated food brand disposals, to maintain a strong balance sheet and flexibility.
In a context where all FMCG names are suffering from deteriorating visibility, Unilever’s long-term upside is worth the wait, Citi maintains.