Unilever PLC (LSE:ULVR)’s third quarter update provided further reassurance of the group’s ability to “master its inflation challenge.”
So said analysts at broker Jefferies which noted that critical to this was the commitment to grow percentage margins in full-year 2023 which it thinks is more than achievable.
The Jefferies analysts said the third-quarter results showed no signs of “the executional ball being dropped, as Unilever transitioned to its new structure.”
The combination of strong price momentum and low elasticity has prompted a full-year 2022 organic sales growth upgrade of 120bps, to 9.0%, with volumes seen down by 2.1%, they said.
This is ahead of the consensus of 8% and -2.2%, the Jefferies analysts added.
Indicating first half 2023 net material inflation of €2.0bn was a commendable attempt to inform the 2023 consensus with some Powell-esque 'forward guidance' the analysts believe, but they feel the number is too high, in the light of falling palm oil, aluminium and plastics prices.
The broker;s analysts said the group’s willingness to guide to percentage margin expansion in 2023 “signals to us that management either expect commodities to deflate in the second half, or are bullish on cost saves, or both.”
Evaluating different scenarios for margins left, the Jefferies analysts said they are still confident in their price target for Unilever of 4,500p with a possible upside to 5,000p. They kept a 'buy' rating on the stock.