Unilever PLC (LON:ULVR) has the financial firepower to launch an ambitious €9bn share buyback next year, following the €5bn stock repurchase planned for 2017.
That at least is the conclusion of the German bank Berenberg, which has upgraded its price target and earnings estimates in to reflect the consumer giant’s self-help measures.
Prompted by a bid approach from Kraft Heinz, Unilver’s strategic review has identified a number of costs savings and has precipitated a rationalisation of the Anglo-Dutch combine’s flabby portfolio that will lead to the €6bn sale of the spreads business.
READ: Unilever to exit spreads after strategic review ...
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Berenberg’s assumption on the 2018 share buyback is it will ostensibly be funded from the spreads sale.
However it reckons the business is generating enough free cash to return a further €5bn, even after €2bn of acquisitions. In other words its analysts are being conservative in their assumptions.
Forecasts upgraded ...
As flagged above, Berenberg has also upgraded its forecasts for per share earnings, partly as a result of the current and possible buybacks.
Its EPS forecast increases by 13% for the current year and 12% for 2018.
Currently trading at almost 19-times 2018’s earnings, the shares “still offer good value”, the bank told its clients.
It repeated its ‘buy’ recommendation with the target price nudged up to £48.50 a share from £40.54.
Of the 18 analysts logged by the Brokerforecasts site as following Unilever, 10 are alongside Berenberg in the ‘buy’ camp. There is only one seller, while the remainder think the stock is fully valued.
The consenus price target, £36 six months ago, is currently just under £40.
The shares are currently changing hands for £40.60, up 19p.