Unilever plc (LON:ULVR) shares gained as UBS upgraded to the stock to ‘buy’ from ‘neutral’, saying its recent underperformance creates a “compelling entry point”.
The consumer goods company’s shares have pulled back about 18% since their peak in October but UBS sees upside from its restructuring.
Unilever spent most of last year reviewing its business after rebuffing a US$143bn takeover bid from Kraft Foods in February 2017.
As part of its restructuring, the company is dividing itself three divisions - Beauty & Personal Care, Home Care and Foods & Refreshments.
“We think Unilever's decision to empower its category divisions could lead to active portfolio management – e.g. quicker roll-out of new products, M&A and selective disposals,” UBS said, leaving its target price at 4,250p.
“This, in turn, could improve the company's long-term organic sales growth potential to the upper-end of its 3-5% goal (or higher)."
UBS sees margins improving, boost from emerging markets
In February, Unilever reported a 3.1% increase in underlying sales and a 16.9% rise in net profit for 2017, boosted by its restructuring programme and a step-up in emerging markets.
READ: Unilever sees better-than-expected growth in fourth-quarter underlying sales driven by emerging markets
Unilever, which owns well-known brands such as Marmite and Dove, is targeting a margin of 20% by 2020 after reaching 17.5% in 2017, which UBS thinks is “achievable”.
“In the medium-term, we expect emerging markets to be a major growth driver and we see upside optionality from further portfolio change, particularly in light of Unilever's planned unification,” UBS said.
“Our analysis of Unilever's end-markets indicates that the company has the potential to grow at more than 5% per annum, which suggests limited downside risk to our +4% long-term organic sales growth forecast.”
Shares rose 2.5% to 3,834p in afternoon trading.