Not all analysts are bullish about prospects for Unilever PLC (LSE:ULVR) after it demerged its ice cream arm, with UBS keeping its 'sell' rating as it predicts difficulty for the shares.
While other analysts rushed to hail an exciting new era for the Hellmanns-to-Domestos maker, the Swiss bank trimmed its 12-month price target to 4,440p from 4,635p, citing subdued market growth and earnings dilution from the demerger of its tea, coffee and ice cream businesses, The Magnum Ice Cream Company, which was completed last weekend.
The updated valuation implies an 8.4% downside from the current share price of 4,847p.
Analysts said the company has reaffirmed its fourth-quarter volume growth guidance to be at least in line with the third quarter’s 1.7%. Operating margin excluding ice cream is expected to be at least 19.5% for the second half.
While medium-term ambitions for mid-single-digit underlying sales growth were reiterated, UBS flagged that current market volume growth is nearer 1%, well below historical norms.
In a recent 'fireside chat', CEO Fernando Fernandez highlighted the importance of the US and India, which together account for 35% of turnover.
Post-demerger, Unilever expects an earnings drag of around 10%, partially offset by share consolidation and continued €1.5 billion annual buybacks. UBS expects this to add around 150 basis points per year to EPS growth.
UBS now forecasts Unilever to trade at 17x 2026 earnings, a slight discount to peers.