Unilever plc’s (LON:ULVR) decision to scrap its plan to move its headquarters to Rotterdam will impact its stock valuation in the short term, according to UBS.
The consumer goods company, which owns the Marmite and Dove brands, has headquarters in London and Rotterdam but announced in March that it had planned to have just one in the Dutch city to simplify its corporate structure.
However, in October Unilever decided to ditch the plan following pressure from shareholders who were against the move because it would have meant the company would no longer be eligible to be a member of the FTSE 100.
READ: Unilever withdraws plans to scrap dual listing and relocate out of UK
“The board might come up with a new plan in the future, but we think the removal of this optionality is unhelpful to the stock's valuation in the short term,” UBS said.
“Longer-term, our sum of the parts analysis suggests up to £51 valuation in a food/home and personal care de-merger scenario, should Unilever simplify its structure and undertake further portfolio change.”
UBS downgrades rating to 'neutral'
UBS cut its recommendation on the stock to ‘neutral’ from ‘buy’ and left its target price at 4,400p.
Unilever is aiming towards 3-5% organic sales growth and EBIT margin of 20% in 2020 but UBS thinks these targets looked “stretched”.
Consensus forecasts put organic sales growth at 4% and the EBIT margin at 19.8% in 2020, which UBS believes limits the scope for earnings per share upgrades.
UBS lowered its 2020 organic sales growth estimates to 3.5% from 3.9% and its earnings (EBIT) margin forecast to 19.4% from 19.7%.
“We are disappointed by the lack of progress in Unilever's top-line – we estimate that its inflation-adjusted organic sales growth has been deteriorating in recent years; either due to weaker-than-expected growth from its acquisitions, or slower performance in its core business,” UBS said.
“Accelerating the top line might require more savings to be re-invested, in our view.”
READ: Unilever reports drop in quarterly turnover in wake of scrapping Dutch relocation plan
The company is also unlikely to announce any large share buybacks in 2019 with leverage at 2x EBITDA, UBS added.
Unilever stock 'not cheap'
UBS said Unilever's stock "does not look cheap" either on enterprise value/EBITDA (at 14.5x it is trading at a 7% premium).
“We continue to value Unilever at a small premium to staples given its +8% EPS compound annual growth rate and more than 3% dividend yield: our £44 PT is based on 18.5x 20 price/earnings (+5% premium).”