Inspired by a recent strategy update from the Anglo-Dutch consumer goods giant, the broker moved to a ‘buy’ recommendation from its previous ‘hold’ and upped its share price target to 5,100p from 4,735p.
While the FTSE 100 group’s revenue growth this year has wavered either side of 3%, Liberum believes the market had missed the point from last month’s annual investor days company committed to reviewing its entire portfolio – from Marmite to Ben & Jerry's and from Dove soap to Lynx deodorant – and disposing of structurally low-growth assets, as unannounced disposals are not typically factored in for analysts and investors.
This focus on shedding the chaff and scaling the “brands of tomorrow” should help Unilever become a “mid-single-digit top-line growth company” in time.
What’s more, the broker sees the “digital transformation” in Unilever’s factories, supply chain, advertising and administrative tasks offers scope for €2bn of annual cost savings beyond 2020, “providing firepower to reinvest and to expand margins beyond the 20% target”.
Unilever directors also committed to regular share buybacks, with Liberum’s analysts forecasting €5bn per year from next year, implying a return of more than a third of its current market cap to shareholders via dividend and buybacks in five years, also boosting earnings per share growth forecasts 1.7% from 2021.
“We admire Unilever’s shift in strategic focus away from a dizzying pace of acquisitions to one that is focused on realising value from the acquisitions made during the last five years,” Liberum said.